A large and growing number of private-equity firms have at least one full-time deal originator on staff. But it can still take the skills of a consummate originator to break into the field at the junior level.
All told, 59 percent of the 144 private-equity firms that participated in this year’s Deal Origination Benchmark Report have at least one business development professional, or originator, whose full-time job is relationship-building with deal intermediaries or business owners. That’s up from 47 percent in the 2017 edition.
The report is produced every year by deal-sourcing platform provider Sutton Place Strategies. All the participants are clients of Sutton Place Strategies, so the sample may not be representative of the broader industry. (Sutton Place Strategies is a consulting client of mine.)
“Deal origination has evolved over the last decade as a mission critical component of a private-equity firm’s success, and a key driver of fund performance,” said Nadim Malik, founder and CEO of Sutton Place Strategies, in a prepared statement.
One of the industry’s most prolific deal-makers, The Riverside Company, founded in 1988, has seen its origination team expand and evolve through three generations. In its early years the firm had a single person dedicated to calling on deal intermediaries. The second generation began with the arrival of Founding Partner Robert Landis in 2002, who expanded the team by adding executives dedicated to different regions of the country.
Managing Partner Jeremy Holland launched generation three about two and a half years ago. Since then the team has adopted new technologies to better track and manage relationships, added more industry expertise, and expanded the responsibility of junior professionals.
The 14-person North American origination team that Holland supervises–slated to grow to 15 next week–has two senior executives focused on the Northeast, one on the Southeast, one on the West and one on the upper mid-West.
A somewhat unsung function of the origination team, said Holland, is keeping other executives focused on what they do best. By searching for add-on targets for portfolio companies, for example, the origination team lets portfolio-company executives stay trained on organic growth initiatives. By drawing on their industry expertise and deal knowledge, originators can screen out deals that are unlikely to reach fruition–a big savings in time for the deal teams.
“We’re proud of the work that doesn’t get noticed as much, because that’s important as well,” said Holland.
Starting at Junior Level
Despite rapid growth in the origination function, junior professionals still have a tough time breaking into the field.
Many origination teams haven’t matured to the point where they’ve added junior support staff. And the supply-demand dynamics are such that thousands of young professionals compete for a limited number of junior business development roles.
Some of these candidates may already have a few years of experience and relationships with dozens of intermediaries–making it more difficult for those without experience to break through. “It’s just a really competitive market right now,” said Erin Carroll, a partner in the Boston office of executive recruitment firm BraddockMatthews LLC.
Lyndon Ratcliffe, who has three years of experience as an investment banking analyst, and who has dedicated his current job search to finding a business development position, said he’s finding it important to build relationships with senior origination executives. The process, he said, parallels what he’d like to be doing with deal intermediaries in a full-time job.
“The origination community is small and tightly knit,” Ratcliffe observed. “There’s a great deal of opportunities that don’t get marketed because these guys all know each other and have resumes on hand and pass them along.”
More advice from Ratcliffe: have a story to tell that shows you understand the position and that you have a passion for it. “You better be prepared to tell that story effectively and coherently to demonstrate how you got here and why you’re pursuing [the job].”
At the vice president and higher levels, the supply-demand dynamics shift. That is due to the relatively small pool of people that have the five-plus years of pure origination experience that firms typically seek.
BraddockMatthews has executed more than 30 searches for mid-level to senior-level business development professionals for private-equity clients over roughly the last two years. That’s up from an annual pace of just one to two seven years ago. “The velocity has increase significantly, and we’re not the only recruiter in this space,” said Carroll. “The pace of hiring dedicated deal sourcing professionals is frenetic at this point.”
Carroll sees even more runway for growth than the Sutton Place Strategies data would suggest. Her best estimate is that somewhere between a third and half of firms that have recently raised funds of $1 billion to $3 billion have at least one mid-level to senior-level professional dedicated to origination; roughly half of all start-up firms, she believes, hire such a person by the time they reach a second fund.
Carroll and Holland agreed that limited partners have in part fueled the trend through their growing awareness about the importance of deal sourcing to a firm’s success. “Everyone’s got a boss and the LPs are ours,” said Holland. “I think you’re going to see more and more firms expanding their origination teams and capabilities.”
Suggested qualities for originators:
* A willingness to take a meeting anytime anyplace. “A great originator is an optimist and knows that that next meeting may uncover an amazing unforeseen opportunity,” said Holland. BraddockMatthews’s Carroll refers to this quality as having a “real hunter mentality”–a willingness to turn over every stone in pursuit of a transaction.
* An unwillingness to take misses personally. “I spend less time worried about my batting average than I do counting hits,” said Holland. “You have to focus on the wins, rather than dwelling on the ones that fall away.”
* A background in investment banking, corporate development or private equity deal-making. “To have credibility with intermediaries and other sources of deal flow,” said Carroll, “it goes beyond marketing and communications.” You have to be “a true proxy for the investment team.”
* Comfort working with data. “Someone who’s not willing to be in and around the heavy lifting on the database and CRMs is not going to be a fit regardless of seniority,” said Carroll.