In a recent study published in Buyouts Magazine, Sutton Place Strategies noted that private equity funds’ market coverage for relevant deal flow opportunities is approximately 20%, meaning they are not seeing 80% of relevant deal flow that otherwise fits their stated criteria. There are a few leading causes for this disconnect, perhaps the most notable being the increasing fragmentation of the intermediary community.
The study quotes, “the number of sell-side advisers that completed at least one transaction north of $5-10mm in enterprise value in the 12 months ending June 2014 increased by approximately 10 percent to 765, compared to the same period one year ago, and the number of intermediary professionals increased approximately 12 percent to 2,371.”
This increasingly fragmented sell-side/intermediary market is becoming harder and harder for generalist PE firms to track, let alone source quality deals. We see funds paring down the industries that they invest in so as to secure valuable deal origination channels and establish core portfolio company-building competencies in pursuit of higher returns.