For the uninitiated, mergers & acquisitions (M&A) sometimes seem as if they happen by magic. All of a sudden, you hear of two companies deciding to join forces — potentially as one absorbing the other — and up until the announcement, very little is often known about the deal until it's struck.
Even for those in the industry, hearing of another firm's discovery can sometimes make you wonder how these deals happened and how they were found. Today, technology is helping firms and organizations in M&A source more and better opportunities for deals through aptly named deal sourcing platforms. Join us as we dive into what deal sourcing platforms are, who uses them, their benefits and features, and top choices.
The simplest definition of a deal sourcing platform is software used to identify potential investment opportunities. But, in reality, they're often used by private equity, investment banking, venture capital, and corporate development organizations to do much more. While we'll delve into more of these platforms' many benefits a bit later on, the most important thing to understand is that deal sourcing platforms, at the foundational level, are how mergers & acquisitions come to be.
Essentially, a dealmaker uses a deal sourcing platform to find potential investment opportunities for their firm or organization. Usually armed with an investment thesis to help them narrow their search, dealmakers search the platform's many data sources for appropriate — often private — companies that fit their preferred company size, industry, and other key criteria.
The platform then returns matching companies and provides relevant information about them. Basic deal sourcing software will give the company name, founding year, industry, etc — things you could find by scraping the internet, though it would take you far longer. More advanced deal sourcing platforms will do quite a lot more for your team. From using AI-powered custom lead scoring models to estimating annual revenue (even for private companies, for which this information is notoriously difficult to find), the best deal sourcing platforms can revolutionize your organization's deal flow.
Anyone involved in M&A can use a deal sourcing platform to streamline their efforts. Generally, users fall into one of four groups:
Corporate & Business Development: Sometimes a department of one of the previous organizations, corporate development (CD) and business development (BD) teams use deal sourcing platforms to augment their day-to-day tasks and streamline their deal flow process. While teams at PE, IB, or VC organizations may have deal sourcing as a part of their list of responsibilities, CD and BD often only source deals. This focus makes deal sourcing software even more important for these teams' success.
Whether you've been in M&A for some time or are just starting out in the industry, it's important to understand why teams use deal sourcing software. As many might tell you, networking and building relationships with the right contacts at potential investment opportunities is the foundation of dealmaking.
But technology — especially as it advances — is becoming an increasingly important part of the industry. With a strong tech-backed deal sourcing program, dealmakers can do much more than ever before.
As firms choose their niches and become more specialized in the face of mounting competition for deals, sourcing the right opportunities that fit your org's investment thesis becomes ever more difficult. After all, fewer people in your networks will know of the exact right company that just so happens to be looking for an investment (and will know the right contact).
Deal sourcing platforms help your dealmakers take their destiny into their own hands and actively search for potential investments. With millions of data points and companies at their disposal — and, as we'll discuss in a bit, the features to filter your searches — your team can more quickly and accurately source deals that fit your organization's criteria.
Another benefit of a technology-backed deal sourcing program is the efficiency a platform can bring. By standardizing your deal flow process into distinct, repeatable stages and minimizing manual sourcing strategies, your team can source opportunities and progress them through the M&A pipeline faster and more accurately than taking a bespoke path for each potential deal.
For example, one way deal sourcing platforms help you do this is through building custom lead scoring models. These models are based on the rules your organization decides, such as the company's demographics, financial information, and more, and help you more quickly and easily understand which companies show the most promise.
No matter how large or small your team is, success is difficult to come by if each member is working off a different knowledge base. Deal sourcing platforms can help ensure your team works with the same information, especially when integrated with the rest of your organization's tech stack.
With access to the same opportunities, a standardized deal flow process, and accurate information about which leads are the most valuable, you can reduce questions and roadblocks from other team members and ensure everyone works together more smoothly.
Any dealmaker knows private company information is difficult to find. And while many deal sourcing software solutions can surface important information about the millions of private companies in existence, it's often not enough to really understand which opportunities are the most valuable. The best deal sourcing platforms offer more than just data; they offer insights.
For example, a company's employee count is often a criterion for your organization's investment thesis. But that piece of information on its own won't help you understand that company's investment readiness. Instead, knowing a company's employee count over time and comparing it to the number of open roles in the same time frame can give you far better insight into the health and growth potential of the company.
Data is the lifeblood of any organization. The more accurate, quality data you have, the smarter decisions your entire organization can make. With the plethora of data deal sourcing platforms provide, your team can make far more accurate forecasts and predictions for which opportunities are the most valuable to chase.
This mindset can then extend to other parts of your organization, helping your team make more informed decisions for more than just deal sourcing. For instance, you could learn that certain outreach tactics work better for certain audiences, making your team more efficient. Or, you may discover that certain events you thought were worthwhile to attend are actually outshone by a different event that has more attendees that match your target company profiles.
Dealmakers are fond of the "old standbys" for deal sourcing, such as networking, events, and conferences. And, while those tactics are sure to always be a part of the M&A playbook, a deal sourcing platform can augment your methods with more varied strategies plus make your existing strategies more effective.
Imagine your team is planning to attend a big industry conference in the coming months. Rather than show up and roam the floor, hoping to nab a contact and make a connection, a deal sourcing platform can help you find out who's attending and fill your trip with meetings before you ever step foot in the venue.
Much like all software, deal sourcing platforms are not all created equal. When you're searching for the right platform, here are the top five features to look out for.
The most important part of any deal sourcing platform is its data. Without lots of quality, accurate data on the right type of companies for your firm, a deal sourcing platform is simply of no use to your organization.
When evaluating a potential solution, it's also important to consider how that data is presented to you. Nearly every choice will tell you how many sources they have. And while it's certainly critical for a platform to pull from as many reputable data streams as possible, individual data points aren't of any use to your dealmakers on their own.
The best deal sourcing platforms will instead offer you sources-first data. By collecting all information about a contact or company, keeping it tied back to its source, and then weaving all the points together into a "web" of insight, platforms that present souces-first data help ensure dealmakers make smarter decisions.
On top of individual data points and comprehensive company profiles, a deal sourcing platform must be able to provide data signals. These go beyond things like founding year and employee count and instead offer insight into trends that may affect companies' growth. How much has the company grown in the past three, six, or 12 months? How many roles do they have open, especially when compared to their employee counts over time? Have they had any key hires recently?
These data signals offer a clearer picture of how a private company is performing as well as give a peek at its investment readiness. With that, dealmakers can better understand potential investment opportunities at every stage of the deal flow process.
Understanding the company you wish to pursue a deal with is one thing. Knowing its place in its industry and the larger market is something else. A good deal sourcing platform must be able to help dealmakers become experts in their organization's chosen niche. From identifying key competitors — for both the target company as well as other firms vying for the attention of those companies — to major trends and industry events, the more information your dealmakers can get, the better off they'll be.
As we discussed earlier, a tech-backed deal sourcing program has a whole host of benefits, and it's the tech stack integrations that make several of them possible. Your entire team must have a "single source of truth" when it comes to how they get the information to do their jobs. This is only possible when all your software works together through integrations.
Ideally, your deal sourcing platform, customer relationship management system (CRM), sales acceleration tool, and analytics software will all connect with each other so they share data. The best platforms will also include features like automatic notifications and alerts so teams are always up-to-date when changes happen, such as a new opportunity or a change to an existing deal in the pipeline.
Artificial intelligence (AI) is rapidly becoming part of every piece of software (whether it's generative AI or not) — and for good reason. AI is incredibly good at processing large quantities of data far more quickly and with greater accuracy than a human. So when deal sourcing platforms have hundreds of thousands of data sources and millions of data points, it only makes sense to use AI to help comb and cross-reference that information.
However, AI is not a panacea, nor is it infallible. AI is not only prone to hallucinations — recalling or generating false information — but it is also notoriously terrible at reasoning. When you're evaluating deal sourcing software, ensure it is using AI for its best purposes and keeping humans or experts in the loop to counteract the pitfalls of the technology.
With the plethora of deal sourcing platforms available, we've sourced the best of the best to help you determine the right one to use in your organization.
Sourcescrub is a leading AI-powered deal sourcing platform with nearly 200,000 sources that provide dealmakers with information on low- to mid-market companies. It offers deep profiles on millions of companies and offers features like AI-powered search, custom lead scores, proprietary data signals, a browser extension, and tech stack integrations.
A popular choice for organizations focused on sourcing deals in the public sector, Capital IQ from S&P Global offers its users something unique: analyst insights and research. Rather than provide specific data points, organizations that use Capital IQ get more distilled information on the market, though it also provides financial information such as equity shares and debt offerings on the companies in its database.
PitchBook provides financial, investment, valuation, and company information for private and public markets. Like the other two companies on our list, it integrates with CRMs and offers API access for firms that have a developer on hand to integrate the platform with their tech stack and provide data across the organization.
For any modern M&A organization, it's more important than ever to ensure your deal origination processes are top-notch. The competition for deals is increasing and owners and operators are becoming pickier about who to make a deal with. Getting to the table first, making good relationships with the right contacts, and showcasing your organization's proprietary skills and knowledge will only become more critical as time goes on.
It all starts with how your organization sources deals. In a recent survey, we found dealmakers who use advanced data and tech outperform the ones who don't. Learn how to source smarter with our guide.
