Competitive vs. direct channels
Deals arrive from a few different channels, and which channel a deal comes through changes how competitive (and expensive) it's likely to be. Investment banks and brokers run formal sale processes, often auctions, where several PE firms bid against each other; the seller gets the best price, which means the buyer usually pays close to full value. Proprietary sourcing is the opposite: a firm's own network reaches out directly to a company's owner before any process exists, and if that owner is willing to talk, there's no auction pushing the price up.
Deciding what to look for first
Increasingly, firms don't wait for deals to come to them at all. A sector thesis is a firm deciding in advance, "we believe software serving mid-market retailers is undervalued and about to consolidate," then going out and finding every company that fits, rather than reacting to whatever a bank happens to be selling this quarter. Meridian CRM, the company this course follows, is exactly that kind of find: a firm with a retail-software thesis identified it directly, years before it ever went through a formal sale process.
| Channel | Competitiveness | Typical price impact |
|---|---|---|
| Proprietary sourcing | Low, no other bidders | Often below full market value |
| Sector thesis, direct approach | Low to medium | At or near fair value |
| Broker-run process | Medium | Fair value |
| Investment bank auction | High, several bidders | At or above fair value |
Checkpoint
- Investment bank / broker: runs a competitive sale process, pushes price up.
- Proprietary sourcing: direct outreach, no competing bidders.
- Sector thesis: deciding what to look for before a specific target exists.
If anything here still feels unclear, ask before moving to Lesson 5.