What Are The Deal Sourcing Channels Used by Top Firms?

Every won deal starts with an amazing opportunity, so it’s no surprise that the number one question on most dealmakers’ minds is, "What are the top PE deal sourcing channels I can use to find my next top target?"

The short answer is that deals break down into one of two sourcing channels: those that come to you (known as inbound) or those that your team must go out and find (known as outbound). But the path from deal sourcing to transaction is never a straight line, and often many different deal sourcing channels influence each deal. Most firms use a combination of both inbound and outbound strategies to fill their pipelines.

Let's look at the typical PE deal sourcing channels used by some of the top firms in the game.

What Are The PE Deal Sourcing Channels?

Every deal in PE is inherently unique and requires a tailored approach to push it through the pipeline. Much of this depends on how it’s originated. However, top firms almost always use multiple channels to move deals forward, and different channels provide value at different stages.

Inbound Deal Sourcing

Most tenured dealmakers are familiar with and have used inbound deal sourcing. When deals come to you, they're often a lot warmer and more interested in a transaction than those you have to find yourself. However, the downside is that most of these deals probably don't fit your firm's focus or investment thesis. 

While an opportunity that spontaneously shows up on your doorstep ready to talk numbers may look attractive at the start, deal viability isn't always there. Plus, the competition is fierce, since they likely reached out to multiple firms at once. Teams that rely on inbound deal sourcing as their main deal sourcing channel usually have an inconsistent and unpredictable deal flow.

Inbound PE Deal Sourcing Channels List

1. Intermediaries: Intermediaries are usually investment bankers or other players in the private equity market, and are classified as “buy-side” or “sell-side.” While buy-side intermediaries source potential opportunities on behalf of investment firms, sell-side intermediaries look for investors for their clients. Both are considered inbound. 
2. Networking: If someone in your network or your firm's network comes to you with a potential deal, it's an inbound deal. Deals sourced from your portfolio's network, especially if you're potentially looking for add-on acquisitions, can also be considered inbound if they originate from that network.
3. Content and Marketing-sourced: A relatively new channel for PE, content marketing (and marketing in general) is a tactic used by nearly every tech company. By publishing regular content (e.g., blogs, white papers, research reports) that your audience finds valuable or insightful, you turn your firm (or key members) into a "thought leader." From these efforts, you show the market you have expertise, knowledge, and vision, which, in turn, helps passively bring deals to your doorstep.

Outbound Deal Sourcing

Outbound deal sourcing has become an increasingly popular PE deal sourcing channel in recent years. In fact, a recent survey showed that 97% of dealmakers engage in direct deal sourcing. Many firms now have business development representatives or even entire teams dedicated to direct outreach.

Proactively searching for targets that match your firm’s specific investment theses and goals results in a much more reliable and consistent deal pipeline. These proprietary opportunities also convert to wins at much higher rates, since other firms have not been looped in, and synergies are aligned from the very beginning.

Outbound PE Deal Sourcing Channels List

1. Technology-assisted Deal Sourcing: In addition to streamlining market mapping and target monitoring, deal sourcing platforms such as Sourcescrub help your team research and pinpoint private companies that match your firm’s investment criteria and are transaction ready. For instance, if you want to make investments only in bootstrapped, US-based additive manufacturing companies with fewer than 500 employees, a deal sourcing platform can find those companies for you out of the millions of companies in its database. This article offers a step-by-step example of how this works in practice.
2. Conferences and Events: While many dealmakers are familiar with conferences and events serving as a meeting and closing tool for inbound-generated opportunities, you can also use events as an outbound PE deal sourcing channel. For instance, if you're already attending an upcoming event, a deal sourcing platform could tell you all the other companies going to that event, allowing you to make connections ahead of time and potentially even set up meetings.
3. Networking: Networking is a two-way street. Opportunities can come to you, or you can source your network. Of course, networking is helpful throughout any deal process, regardless of how deals are originated, since warm introductions from mutual connections result in higher response rates than cold outreach. 

PE Deal Sourcing Channel Examples

To help you understand how these PE deal sourcing channels work in practice, two top firms gave us some insights into how their deal sourcing works.

Example #1: Half Inbound and Half Outbound for Frog Capital

For many years, Frog Capital largely relied on inbound deal origination — it was 75% of their pipeline. But the channel was unreliable. Now, they use a deal sourcing platform, Sourcescrub, and follow a much more hybrid approach, sourcing deals through both inbound and outbound channels.

As a result, their deal flow has increased by 50%, with about half of deals sourced via inbound channels and the other half via outbound. Meanwhile, they use conferences and events to help keep opportunities engaged and nurture them through the pipeline.

Read Their Story

Example #2: Boathouse Succeeds Through Both Intermediary and Proprietary Deals

Another situation where inbound and outbound deal sourcing work in tandem, direct deal sourcing helped Boathouse Capital build a proprietary deal flow. In fact, according to Colin, a Partner at Boathouse, adding direct sourcing on top of the firm’s work with financial intermediaries has been a big competitive advantage.

“Our ability to consistently generate high-value proprietary deals is a major differentiator,“ says Colin. Meanwhile, Steve Dressel, M&A Director at Boathouse, uses the platform to find potential investment opportunities based on a unique combination of data signals, which has improved deal sourcing productivity by 50%!

Read Their Story

Start Sourcing Smarter

At the end of the day, how your firm chooses to answer the question "What are our PE Deal Sourcing channels?" will depend on its strategy, expertise, and ultimate goal. As our PE deal sourcing channel examples showed, it will likely be a mix of both inbound and outbound.

For instance, if your dealmakers are strong writers, you may consider adding content marketing to your mix. If others like face-to-face interactions, perhaps your planned activities will include event visits, chock-full of meetings with companies you found via a deal sourcing platform.

If you want to start sourcing smarter today, check out this eBook. You'll learn the six steps to making your private company deal sourcing more effective in no time.