Deal Origination in Investment Banking

Deal origination is the process of finding potential investment opportunities for businesses including private equity, venture capital firms, or other financial players. Deal origination involves either spotting potential investments and pitching directly to clients or creating deals by acting as an intermediary in transactions.

Traditional deal sourcing relies on connections to the corporate world and networking. Companies looking to raise funds or acquire companies depend on these sources to learn about the market. This is a lengthy process that requires access to business owners who are likely to be in the company’s immediate network as well as relationships with investment intermediaries.

In contrast, larger investment banks have an internal team that is focused on deal sourcing, with finance specialists working all hours to generate leads and to build a pipeline of possible investments for their firms. The success of this method depends on the reputation as well as execution capabilities of these professionals, which means it’s more appropriate for established investment companies with a track record of successful deals in their portfolios.

It is crucial for any investment bank to search for new deals and maintain a healthy M&A pipeline, but it is difficult to manage without the proper technology and tools to do so. Fortunately, financial technology companies have created platforms that assist finance professionals and investors generate and source potential deal opportunities using automation. These platforms can filter outbound and outbound leads based upon certain criteria, such as size of transaction, industry, and location, and can reduce the amount of time looking for opportunities on the internet.

A few of these platform providers also provide services to smaller groups that do not have the resources to establish their own origination teams. CAPTARGET is an example of a platform that provides an arrangement that is fee-for-service to help small brokers and investment banks locate business deals. These kinds of services can save money and increase the number of leads as they give access to a vast database of investors who are looking to invest.

Investment banks also have other methods to procure deals other than these technological solutions. They can, for example send the details of their monthly purchase-side and sale-side deals to potential clients. They can also spot potential opportunities to invest in the market and then present clients with these opportunities, and earn commissions once the transaction is completed This is risky and takes a lot of time however it could be effective if the investment banker has the right relationships with blue-chip clients. For example, a large US investment bank recently completed a USD 2 billion merger with an Indian company after carrying out extensive deal sourcing efforts in India. The bank was able to secure this deal thanks to its deep understanding of the Indian economy and its cultural. It also collaborated with a local investment banking firm to ensure it was in good hands. It is this level of knowledge and dedication to quality that makes dealing with an investment bank an asset for any business.

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