Proprietary dealflow is a buzzword that PE players use to attract investors and they claim it gives them a competitive in pricing assets. What is the reality behind such claims? According to new academic research from Harvard Business School and Chicago’s Booth School of Business, which engaged with 79 private equity firms (managing more than USD 750 billion in capital), almost 36% of closed deals are “proactively” self-generated, another 7.4% are provided by management and 8.6% come from their executive network. These arguably have the potential to be proprietary. A large chunk of dealflow comes from investment banking contacts, 33%, while 8.6% come from deal brokers and 4.3% come from other PE firms. These three are “unlikely” to be proprietary, according to the researchers.
When asked separately to summarize these sources, the PE investors considered almost half of their deals that they closed (48%) to be proprietary in some way. The researchers warned that they had no way of evaluating exactly what proprietary means nor can they validate the extent to which the deals truly are proprietary or advantaged. Nevertheless, the researchers said that these results indicate that the PE investors should spend some time considering the extent to which their potential investments are proprietary and make it more explicit. The idea is that they should get some clarity on that point and invest accordingly. (Image source: HBS)