What Does Deal Origination Mean?
Deal origination is a process by which firms source investment prospects. During the origination process, the vendor submits a variety of financial information to gain credibility in the market. Technically, it means generating deals to pitch to buyers. This is the first step toward creating a deal that will be scrutinized, marketed, syndicated and executed.
Divestopedia Explains Deal Origination
An effective deal origination process is fundamental to successful investing. Origination involves generating leads and managing relationships with intermediaries. Strategies for deal origination vary among firms. Some firms prefer to employ specialist teams while others prefer using in-house resources. Ultimately, origination hinges on having a broad network of contacts and a good reputation. Origination is done by either gaining knowledge of deals in the market so that a bid can be placed, or by creating a deal for themselves through their connections with one of the parties involved. Investment banks and law and accountancy firms are a fertile source of deals. Investment banks are the primary deal source, but in the mid-market, both vendor and buy-side intermediaries play an important role. Both buy- and sell-side opportunities are sourced.
A vast majority of deals are now auctioned because of increased competition for deals alongside increased sophistication of vendors, particularly in the mid-markets. The parties use technology and media to network and, even where opportunities are initially originated by a private equity firm, the vendors try to market the deal more widely to other qualified prospective buyers.