How can dealmakers thrive in 2025? In our recent webinar with Private Equity Career News, Top Deal Origination Tips and Hacks for 2025, a panel of seasoned experts tackled this question head-on. David T. Clark, Senior Managing Director at Raymond James & Associates; Jeremy Holland, Managing Partner, Origination at The Riverside Company; and Leon Brujis, Partner and Head of East Coast at 65 Equity Partners, joined moderator David M. Toll to explore actionable strategies for navigating a challenging market.
The hour-long conversation was packed with essential tips and hacks as these industry leaders revealed key sub-sectors poised for growth, innovative applications of AI in origination workflows, and new tactics to build stronger pipelines. Actionable takeaways came from Leon Brujis’s insights on mastering AI tools and leveraging them to uncover overlooked opportunities and Jeremy Holland’s perspective on fostering long-term relationships with founders as a way to gain a competitive edge, saying, “Private equity has become a game of inches. Success often hinges on preparation, industry expertise, and pre-existing relationships with key players.” Additionally, David Clark emphasized the importance of understanding niche sectors and creating tailored outreach strategies to stand out in a crowded market.
The experts made it clear that success in deal origination in the coming year will require agility, combining advanced tools with data-driven market insights, and creating genuine connections with prospects over time. Watch the full webinar below to dive deeper into their tips, hacks, and real-world examples.
Transcription:
David Toll (DT): Welcome to a special private equity career news and private equity professional sponsored webinar. This one covers top deal origination tips and Hacks for 2025. We’ve got a great group of speakers to take you through the topic today. I’m super excited. My name is David Toll. I’m the founder and publisher of Private Equity Career News, and I will be your impresario for the program today. I’d like to start out with something very important, and that is thanking our sponsor, Sourcescrub. They are the leading deal sourcing platform for deal makers who wanna see more deals, win more often, and get the most out of their investments. Let me start with a few housekeeping announcements. First, a friendly reminder to any reporters on the program today that we are off the record. Please reach out to speakers individually for permission if you would like to use anything that they say in an article. Second, you can download a copy of the slides for today's program from your control panel. It includes a copy of the results of a 2023 survey that we conducted of business development professionals, and it has some valuable information on industry origination practices. Next, later today, I will send you a recording of the program, so no need to take extensive notes unless you really want to do that. And finally, many of you asked good questions of our panelists when you registered. We will plan to address many of those during the discussion portion of the program, but please also feel free to ask questions at any time through the question feature on your control panel. I'll be moderating and curating those as we go, and we'll also save about five or ten minutes at the end of the program for a pure Q &A session. Okay, I'm grateful to have three expert speakers today to guide you through the topic. Leon Bruges is the New York City-based partner and head of Northeast Coverage at private equity firm 65 Equity Partners. We have David Clark, Boston-based Senior Managing Director at Investment Bank Raymond James. And we have Jeremy Holland, Los Angeles-based managing partner of Origination for lower middle market private equity specialist, the Riverside Company. I'd like to ask each of our speakers in turn to tell us a little bit more about themselves. Leon, we’ll start with you. Tell us a little more about 65 equity partners, your investment strategy, and how prolific you are these days.
Leon Brujis (LB): Thank you David and it's great to be here in the panel with Jeremy and David. It's quite an honor. It's a pleasure to be here. As you mentioned, I'm a partner at 65 Equity Partners, a global middle-market firm with three and a half billion dollars under management. My role is to lead our New York office. Our firm operates as a unique kind of private equity, bridging traditional growth, equity and buyout strategies by working closely with founders and family-owned businesses. And we emphasize creating tailored capital solutions and strategic partnerships for entrepreneurs. Personally, I play an active role in deal sourcing, structuring, and executing transactions, leveraging my two decades in private equity to drive value creation both for our portfolio companies and our investors.
DT: Thank you. Super. Glad to have you on the program, Leon. David, tell us a little more about Raymond James and the role that you play there.
David Clark (DC): Certainly. Thanks, David. Yeah, so I'm a senior managing director at Raymond James. I lead our financial sponsor coverage effort. I've been doing, been with Raymond James now over 15 years, focused on sponsor coverage. Prior to that, my background was more on the industrial and environmental services side. It really kind of has been part of Raymond James, has been focused on building out our coverage of private equity firms as well as kind of in the more recent years, but also family offices, independent sponsors, basically any kind of financial investor. You know, Raymond James, for those who aren't as familiar, we're a public company. We are better known for our wealth management channel. We've got over 8,700 financial advisors across the country within investment banking. We've grown that business pretty significantly the last couple of years. We're now over 650 bankers, mostly in the US, but also in Europe and in Canada. We have kind of eight industry groups that we go to market. For the last 12 months, we've closed just over 170 M&A transactions, so we've been pretty active. And as we think about the types of clients we work with, 80% of our clients are actually private companies, so those could be founder-owned or private equity-owned, and about three-quarters of what we do are sell-side transactions. So that's kind of we still a lot in the private world and mostly doing selling businesses. Our deal size is kind of range from 100 million to north of a billion. Our sweet spot really is the middle market which I kind of put in the the 200 to 500 million dollar enterprise value size.
DT: Okay super David I didn't realize how big you guys have gotten. That's outstanding and Jeremy tell us that was about the Riverside Company, your investment strategy there, and the deal sourcing operation that you that you oversee.
Jeremy Holland (JH): Sure, the Riverside Company is a lower middle market specialist, been around for more than 35 years, six different funds, teams, strategies, whatever you wanna call them. One for Europe, another for Australia, and all the rest are here, control, non-control, growth capital, B2B SaaS specialty fund, you name it, kind of covering that end of the market. I'd say one of the unique things about us is that global footprint in the small end. And we call that $400 million of enterprise value, but all the way down. Our B2B SaaS team, as an example, literally starts with single million dollar checks. So we're able to operate in the smallest end of the market, bringing those tier one resources down to the entrepreneurial level. Personally, I've been a private equity investor for more than 25 years, the last 14 of which here at Riverside. Our department, as you mentioned, oversees both business development as well as the exit processes. I think that might be fairly unique in the industry that we brought those two components together.
DT: Jeremy, that is interesting, and why did you decide to do that?
JH: Now, our colleagues are so heads down in the portfolio doing operational work and growing the businesses that they're not able to be in market as readily as we are. And so while they certainly know who the incumbent banker is, they are interested in understanding who the other firm should be to pitch on them. We're not interested in performing big bake-offs, as they call them, but we do need to have a healthy alternative and a little bit of competitive tension, if you will. So we're out there. We can advise on what market terms are for an engagement letter, who the experts are, and best practices, taking a lot of the administrative burden off their plate that allows them to allocate their time to the best and highest use. And so it's been very productive to bring those components together.
DT: And, Jeremy, when I think of the Riverside Company, I think of one of the most prolific dealmakers ever in private equity. Can you give us a feel for your recent deal pace over the last few years?
JH: We're shockingly consistent. We close about 1% of what we see, which for us, that's about 50 transactions a year on average. It varies a little bit. You know, a few years ago when the market was hot, there was a spike up, but very consistently 50 deals a year when you combine all the different geographies, add-ons, platforms, different industries, what have you. So within that, there's a lot of variability as industries get hot and cool off and things like that. But together, it's almost shockingly consistent 50 deals a year.
DT: Consistent and almost unbelievable to do a deal a week almost. Yeah, all right, so with that, I think you should all be grounded in the backgrounds of our speakers. I'm going to go through a quick slide presentation to take you through the results of a survey of business development professionals that we conducted last spring. We are planning to do this survey again early in 2025, so keep an eye out for that and please to participate if you get an invitation to do so.
Okay, so like this program, the Deal Sourcing Survey was sponsored by Sourcescrub, so we're grateful for them for underwriting the cost of it. This tells you who participated, and no big surprise. We had just under 100 participants, most of them working in private equity, almost half at buyout firms, another 20% at independent sponsors. Some folks at growth equity firms, family offices, and venture capital firms. This shows you which firms participated by size, fund size, and assets under management. You go to the very top of this table, we show the median size of the latest fund for respondents just 228 million dollars median assets under management 500 million dollars so, by and large, these are lower middle market to middle market firms, however, we did have 30 firms with over a billion dollars in assets under management so we group those together we called that sample large firms the rest are small firms just to see if there were any differences and BD practices between small and large shops. It's always interesting to see growth in the number of dedicated business development professionals across the industry.
So we did ask how many people at your firm are dedicated full-time to deal origination. For the smaller firms the meeting is one, but you can see the bottom quartile is actually zero. So at least 25% of the smaller firms don't have anybody tagged full-time to do deal origination. For the larger firms, the median is two full-time people dedicated to origination, but again, at least 25% don't have anybody dedicated to full-time to deal origination anyway.
We asked folks how they organized their origination team. Some of the common ways we knew about would be by industry or by geography, and those did turn out to be pretty popular, So about a third of respondents said they organized their origination teams by industry. About one in four, 25%, said they did it by geography, and the rest had some other way to do it. Not a lot of difference between small and large firms.
We asked about deal sourcing efforts and how important different sources of deals, deal methods are. So no big surprises here, emailing, calling, and meeting business owners directly was one of the most popular deal sourcing activities. And pretty much tied with that is emailing, calling, and meeting deal intermediaries like David Clark of Raymond James.
We asked what CRM deal sourcing tools do you use and it was pretty evident that DealCloud is by far the most popular deal sourcing platform. They have about a third of the market and an even higher percentage of the large firm market. Respondents could pick more than one answer here, so a lot of folks are still using Excel as a tool for their deal sourcing efforts.
We also asked about some of the up-and-coming deal sourcing platforms like Sourcescrub and Sutton Play Strategies. And you can see that they're starting to make some good inroads into the marketplace.
We asked about sources of deal flow and how valuable they are. Of course, company owners, sell-side intermediaries emerged as the top deal flow sources. But you can see others are also pretty popular, including buy-side intermediaries. In fact, we just did a story in Private Equity Career News about Greenfield Research Partners and a whole host of new buy-side advisory firms that have sprung up in the last few years, becoming much more popular with private equity firms, especially as they turn more to add on acquisitions as a way to build their portfolio companies.
So this is always a fun question to ask is how folks categorize their deals. Are they proprietary deals, broad auction deals, limited auction deals? And with all respondents, all respondents basically said four in 10, 40% of our deals are proprietary. About a third come from limited auctions and another slightly less than that come from broad-based auctions and not a lot of difference between small firms and large firms on this question.
This table shows you in table form the classic funnel. Of course it takes a lot of kissing frogs, in this case kissing teasers and to actually produce consummated deals at the other end of the funnel. This shows you by small firms and by large firms roughly how many teasers they're seeing per year, how many letters of intent that leads to, and then ultimately how many platform deals and add-on transactions they consummate. It's a good table to look at when you're benchmarking your own deal sourcing efforts.
This survey took place not too long after the pandemic, so we did ask what percentage of the time they travel during a typical non-pandemic year. For smaller firms, the median was 25% of the time, and for larger firms, even higher percent, 38%. and you can see that folks are attending quite a few conferences as well. For smaller firms, median is four. For larger firms, it's six. What are the most popular conferences to attend? ACG Intergrowth and the local ACG events really dominate the deal sourcing scene. ACG Intergrowth is called DealMax now, and you can see some of the other events, particularly with large firms are popular, like the Opus Connect events, North Star private equity heavy hitter events.
And finally, what associations are you active in? Again, ACG really dominates the M&A scene with well over over half of all respondents belonging to ACG or active in ACG. SBIA has also been coming on strong particularly with independent sponsors so they're making some some real noise in the market and you can see some of the other associations as well.
So that's it for the slide presentation and now we're going to get into the discussion portion of the program. We have so many people listening in that I couldn't resist asking a few polling questions. So we're going to take advantage of that large audience and the first question I have for everyone is how do you expect your firm's total number of platform deals next year to compare with 2024? So I'm going to launch the poll and go ahead and make your selections. Your choices are down 10% or more, down slightly to 10%, flat with this year, up slightly to 10%, and up 10% or more.
Okay, about half of you have voted, so I'm going to close the poll and share the results. So it looks like when it comes to platform deals, quite a bit of optimism for next year. So almost half of you expect the number of platform deals you do next year to be up slightly to 10% and another quarter up 10% or more.
So, I have one more polling question and it's very closely related to that one, and it's how do you expect your firm's total number of add-on deals next year to compare with 2024? And you have the same choices of answers, so go ahead and make your selections. Again, I'll wait till about half of you vote, and same choices, down 10% or more, down slightly, flat up slightly or up 10% or more.
Okay, and I'm going to share the results. Okay so as you look ahead to next year these results are very similar to what you expect for platform deals. So everyone seems to be gearing up for a big 2025. Okay. With that as a backdrop, we're going to get into the heart of the discussion and I can't wait.
We're going to start off with a question for all of our speakers and that is in keeping with the polling question, what is the quantity and quality of deal flow for you right now and as you, and what is your outlook for 2025? And David, why don't we start with you?
DC: Sure, happy to. I think it consists with kind of the polling results. We're very optimistic about next year in terms of M &A activity. You know, it's driven by a couple factors, you know, one is, you know, if we look at our engaged deals, we have indeed, we have deals that have been, you might have been engaged for six months, and we're just sort of waiting for the right timing. And that's a lot of it driven by the financial performance of those companies. So we expect to see quite a few of those that we've kind of have, you want to put them put them on pause as we kind of wait for the right timing, those will come to market next year. So we expect to see quite a few of those that we've kind of have, you want to put them put them on pause as we kind of wait for the right timing, those will come to market next year. Other pieces, if you look at the percentage of deals that came to market in the last 18 months that did not close, a lot have not closed. And those deals will likely come back to market next year as well. So those things will kind of resurface if you want to call that. And then I guess the last piece of the point looked at is our pitch activity for the last several months has been pretty high. And so a lot of discussions around and discussions with private equity firms, particularly about portfolio companies and wanting to sell them, and those are pitches not necessarily to hire a bank and bring it to market in the next four to five weeks, it's hire a bank and get prepared to launch it at the right time in 2025. So all that points towards a more active and busier year next year and more deals in market and getting closed.
DT: Nice. So that's, again, a pretty optimistic forecast, David. Let's turn to the actual deal sponsors on our program and see both what they're expecting in the way of deal flow and deal volume. And maybe we'll also ask them about plans to sell portfolio companies, since that will contribute to the overall deal flow in the market. Leon, let's start with you.
LB: Thanks, David. Look, as a relatively new firm, 65 is three years old, we are still in the process of creating awareness around the unique solutions that we offer, particularly our non-control capital approach. This has sparked significant interest from businesses that do not necessarily fit the traditional buyout mold. These companies often prioritize flexibility and partnership over outright ownership changes. And what we have found is that this model resonates deeply with founders. Because of this, our pipeline has never been as robust as it is today. We're seeing a wide variety of opportunity across industries and the quality of the prospects aligns well with our strategy. We're really looking for high-quality businesses. I think the current market environment continues to allow for favorable terms compared to the competitive landscape of the 1921 timeframe, providing a window of opportunity to structure deals thoughtfully and create value for both parties.
DT: Super, thanks Leon. And Jeremy, tell us about deal flow and deal volume there and your outlook for next year.
JH: Yeah, deal flow has varied substantially based on the nature of the ownership and the type of transaction, our version of special situations, companies looking for embedded value, healthy end markets, companies with some operational upside opportunities and areas of improvement have been very busy, very, very busy deep pipeline. But a lot of the higher quality $10 million EBITDA and up companies owned by private equity firms have been very few and far between. As David Clark mentioned, waiting for the right time and the right trajectory and profile of their financials before they take it to market. And so fortunately for us, because we're known for playing in the very small end of the market, we can often make our own luck. When you're buying companies with one, two, three million of EBITDA, these are often personal transactions that have very little to do with M&A trends. These aren't entrepreneurs that talk in terms of EBITDA multiples and debt reads and all that slang is not part of their world. All they know is they're 82 years old. They're you know, their children are in their 50s and have not gotten involved in the business. And it's time to find a good steward for their employees and customers. So we continue to make our own luck in the small end. We do anticipate echoing the others are very strong. 2025 LPs have spoken. They need liquidity. They've always wanted more exits, but they need liquidity, and we, along with our brethren at other firms, are primed to do that, so we expect to exit materially more over the next two years than we did the last two years and continue returning more capital than we call. That always keeps LPs happy.
DT: Okay, so sounds like all systems go and we should have a good 2025. Now we also on this audience and this audience have a great deal of interest in what subsectors are expected to be particularly robust where we'll see a lot of deal flow and also what sectors might cool off or just be somewhat slow. So David, you're in a great position between buyers and sellers to comment on that question.
DC: Yeah, certainly. I mean, I think the sectors that we've continued to sort of see be strong this year will continue to have strength. I kind of put in that what I would describe as infrastructure services, kind of facility services. These are kind of generally required services need to be done in many cases. It's more regular maintenance that has to be done or in the case of like elevator services or fire life safety is kind of regulated. So there is much better visibility into what the revenue looks like and is expected to be. Those will continue to be busy and an infrastructure services is an area where we're hearing a lot more interest, particularly from private equity firms to to find ways to play in that space and that can be things around the electrical grid. Our water sector banker who's been covering for a while, he's been very active, you know, pipeline repair, maintenance type work, you know, and also I put in the infrastructure category data centers, I mean data centers are being built like crazy now, they need to continue to be built, anybody who's servicing them, sort of the opportunity and the longer opportunity there is pretty strong. Second, as I expect to see coming back, you know, we're starting to see a little bit coming back and building products. I expect to see that to continue next year as well. There's a general view that we need to build more and so I think the building product space will start to come back some more. You know, I think healthcare as well. That's an area that usually is pretty steady but I think we'll start to see more activity along those lines. The one that I put in the category of probably maybe a little bit slower, a little bit softer next year, but probably we'll pick up as we get towards the second half is consumer, particularly discretionary consumer. That's been a little bit challenging area just as consumers are starting to pull back and it's a question of for many of these companies, what's the steady state look like going forward, and are buyers able to get comfortable with what the seller's view is what the steady state looks like. So consumer has been a little bit slower and I expect that to be a little bit, take a little longer to come back. There are certain pockets like beauty, personal care, which continues to be pretty active, but otherwise that's the sector which I think is going to, again, be a little bit slower the first half of the year. We'll see if it kind of picks up in the second half. So it's kind of a quick snapshot of what I'm looking at and what I expect for next year.
DT: Okay, really good overview there, David. And let's go to the farms working in the trenches. And Leon, you're doing non-controlled deals, sort of special situations, but tell us what you can about the kinds of deals that you look at, what subsectors you expect to see more or less deal flow?
LB: Yeah, I mean, I agree in large part with David. I think business services, which is a very broad category, particularly technology enabled business services will continue to be an attractive area for investors to invest in. I think piggybacking on what David said, professional services both blue-collar and white-collar I think are a great area to invest. So firms like accounting firms or cleaning firms, those are all firms that are focusing on things that need to get done year over year regardless of the environment. And I also agree that businesses that have exposure to potential tariffs will be impacted, and that includes a lot of consumer, because a consumer brands import from overseas and they may be impacted by the tariffs. One sort of contrarian view is for the last few years transportation and logistics has not been a good space because it's been a difficult environment and at some point that's bound to return. My contrarian view is that transportation and logistics might be a very interesting space to park dollars in the next few years within your administration.
DT: And Leon, expand on that a little bit. What's your thinking in terms of why transportation and logistics might get hot again?
LB: Well, I think that because our incoming president is a tariff enthusiast, that's going to cause supply chains to continue to be withdrawn. And uncertainty and change in the supply chain usually presents opportunities for certain sectors within transportation and logistics. I think that, you know, it is largely accepted at least by the finance community that the new administration will be pro-business and there will be lower regulations and I think that that, you know, the spur of economic activity will also help drive transportation and logistics deals. At the same time, as I mentioned earlier, the redrawing of the supply chains will cause firms to reevaluate where they're sourcing materials. People talk about near-shoring, friend-shoring, and that will also create activity in the space. And at the same time, I think that there's pent-up demand in the space that after years of the supply chain being battered by inflation and other items, it's just bound to come back.
DT: Okay, good stuff. So we'll keep an eye on transportation and logistics next year. Jeremy, let's turn to you. What subsectors and industries do you think are going to be heating up and what's going to be cooling down?
JH: We are seeing a lot of activity in franchising. Franchising has really embraced private equity. We've ourselves have backed more than 55 different brands at this point, heavily focused on the franchisors rather than the franchisees. And there's a tremendous amount of interest of other private equity firms to get into these multi-brand buildups. They really love the recurring revenue nature, the asset-light, highly scalable nature of businesses, and the low customer concentration, if you will, meaning that you have all the franchisees as your core customer, really. So that's been very active and should continue to be, especially in the smaller end of the market, although we certainly have seen some very large deals announced in the last 24 months as well. We're seeing a tremendous amount of activity in our longstanding super thesis, as we call safety, security, compliance, and risk mitigation. All those things that protect your brand, protect your workers, cut down on insurance costs, all of those things continue to be ever more important. That's been a deep specialization for us across industries and business models for many years and that we continue to see more and more interest in those themes. And another is ingredients. Whether that be flavor enhancement, functional ingredients, you know, these higher margin producers that own the formulations. People love the consumable nature, the sticky nature of the business. You know, if you create the green tea extract for the special edition Oreo and it takes off, the manufacturer doesn't want to tinker with that recipe that's a hit. And you could have that skew for a very long time and you're a very small cost of a bigger product and so you're you don't have the margin compression in that area so that that's been very good to us. We're hearing a lot of hand-wringing around A&D. A lot of people don't know what this new administration may do in terms of migrating in some way from the legacy large defense contractors the Lockheed's of the world or Boeing's and whatnot to perhaps more new technologies, drones, AI, things like that. And so there's a lot of people just concerned enough to take one step back and all things A&D while they wait to see how things settle out.
DT: Nice, Jeremy. I didn't realize that the Riverside Company was so big in the franchisor space. What's a favorite franchisor that you've backed that maybe is doing something a little unusual?
JH: Well, the one that's best known changed its name. So it used to be known as the Dwyer Group has now been rebranded neighborly. We owned it in a control setting twice and also a third investment period as a non-control investor alongside Harvest Partners. Today, they are arguably the largest home services franchisor in the world. Although Charlie Chase at First Service Brands might beg to differ on how that calculation has been done. So they effectively taught us franchising. And we've taken those lessons learned down to the very small end of the market and are helping entrepreneurs across personal care. We have facility services, so B2B services. We have a senior care buildup. It's all things around the baby boomers and their parents even that are still with us. And so many more that we've really worked that business model across numerous industries and geographies, and that's really become a deep specialization for us.
DT: Okay, so we've had a really good conversation now about deal flow, deal volume, projections. We've heard about some of the subsectors that should be heating up over the next several months, including some really, really interesting ones. And now we're going to turn more to the nuts and bolts of the topic tips and hacks that you can use out there to make sure that you're seeing these great deals that come to market and then eventually win them so I'm going to start with Leon and This question just came in from the audience what new tools and techniques and particularly AI are you exploring, using, to identify and source deals out there, whether it's directly from business owners or from intermediaries.
LB: Thanks, David. Look, I think that, you know, just as a general comment, there's been concern about AI taking jobs from people. And I modify that to say that people that know how to use AI will take jobs from people that don't know how to use AI. And the power of artificial intelligence is immense and we are only just but scratching the surface. I've gone from using CHI GPT and some of the other models as a novelty and oh that's cool to, I use it pretty much daily and really the limit to the tool is your own imagination. So if you're looking to identify, you know, to pick on Germany's franchises, franchise is in an area you can prompt, you can prompt the LLM models to search for Northeast franchises focused on, you know, guard landscaping, whatever the case might be. It also can help you do some of the research on business owners and help you write letters that you can send. So the productivity enhancement that AI can bring if you know how to use the tool is in As a firm, we are in the midst of implementing the co-pilot tool, which is backed by OpenAI. But I think that the tools available to everyone on this call, I would encourage everyone to time learning how to properly prompt charge GPT and other LLM models and to be creative. I think the one thing that AI as of yet is not able to do is to be creative about how it's used. And, you know, if you think about it, when electricity was first a thing, it was just the light bulb and we were bringing light to people and we didn't know that electricity was going to become computers and communication and TV and we are at the light bulb stage of the power of AI and so our lives will be tremendously changed and impacted by as these tools develop and become proliferate and it will have a profound impact in our business and I think it already is having that.
DT: Very thoughtful response, Leon, appreciate it. And you mentioned you're implementing Copilot there, which I'm not familiar with. Can you just go into a little bit more detail about what that's about?
LB: Yes, Copilot is a tool that Microsoft develops that works well in their ecosystem, so you can use it in Teams to take notes, in PowerPoint, in Excel, in all of the Microsoft applications. It's also very good around security and compliance, which is why I believe many firms that are looking to adopt AI tools at the institutional level are looking to do tools like Copilot as a way to bring AI at the institutional firm level.
DC: Right. We're looking at that as well at Raymond James. I think that's something that we're going to be rolling out again, just because it works well within the environment that we operate.
JH: Yeah, we're also using Copilot for exactly Leon's reason for compliance purposes. You know, we are working with confidential information every day, and we need to use a vendor that we can feel comfortable that their LLM is not being trained on the data we're using. And so it's important to to go at this stage where things are moving rapidly with a vendor that you can trust their security protocols.
DT: Alright, it sounds like I need to brush up on copilot. All of you are Implementing it or have implemented it. So now Jeremy, I want to talk to you about technology because I know You're a little more skeptical about some of the newer field sourcing technologies that have been advanced over the last few years, but you can't argue with the Riverside Company's success, so we want to hear your view on it.
JH: I'll rephrase it to you that I'm skeptical of some of the claims. We are on our third generation of doing trials and demos. I encourage everyone joining the call today that if you wrote off a system two or three years ago, it could be totally different today. Give it a clean slate. If need be, have a different colleague take the demo. So you get a fresh set of eyes. We're on our third different round of these because it is moving so fast and I get it. It's tempting for an entrepreneur to claim AI and MO and, and all of these things. But put that aside and continue to test them and think about how you can use them together as great productivity tools. As Leon mentioned, they are important. But sometimes you need to think about what is it really? A demo is not enough. If you really need to get a hands-on trial, even if it's just a number of hours or a couple of days, block out the time and use a real-world scenario, as opposed to something that just came up off the top of your head to play with it, you'll get much better context or even use a former portfolio company's add-on process so that you can compare what your past research results were to what it's producing. Now, much of these are research tools today and outreach tools. I would argue that often truly origination or winning over the trust of the entrepreneur is not what the systems are built for. And so face-to-face interactions are never more important than they are today. But what these tools do allow us to do is allocate more time to those interpersonal interactions and a whole lot less time doing that grunt work. So it's not only making us more productive, but it's making our colleagues' jobs more enjoyable as many people don't enjoy those functions that the software is so amazingly fast at today.
DT: And Jeremy, based on what you've seen with the third-generation trials that you've had and demos, are you, you feel like you'll be pulling the trigger at some point in 2025?
JH: I hope so. It goes back to the compliance issue. We're getting there. I believe that the technology is advancing incredibly quickly. And so we have to keep an open mind as to what the capabilities are. But so far, we've run into some roadblocks where some systems were, they kind of topped out at intern quality work and then stopped learning, stopped improving, but I suspect there'll be breakthroughs on that and we will see leaps and bounds over the next 12, 24 months, if not faster.
DT: Very cool. And Jeremy, let's stick with you again. We're talking about the sort of the heart of the topic, tips, and hacks to improve your deal sourcing operation. Now, given the market dynamics that we expect next year with basically more deal flow, more deal volume, the sectors that you mentioned heating up, and also anticipating more deal flow from private equity firms that have to start returning more money to limited partners if they're going to stay viable in the future, how are you modifying your deal sourcing operation to anticipate those new dynamics?
JH: We're spending a lot of time helping to educate the market on the unique capabilities and the global footprint or global as my colleague likes to say, global in scope, local in presence, and how we can help them elevate their business to the next level. And so, you know, playing those, those alpha tools that are, that are unique, we think are fairly unique to Riverside. We are going very deep, you know, investment bankers have become industry specialists like we have, and they often do not want to run a 500-person process that includes 200 firms that have never worked in that industry. So really refining that message to making sure that they understand how deep we are in each of those specific niches. And so in the event their client has asked them to run a more tailored process or they've advised for a more tailored process, you're on that short list demonstrating the deep capability and therefore the ability to move quickly and close at the price you've offered. So there's a lot of that focus matters a great deal and also a lot of effort behind Really having to re-communicate that we have that special situations capability that you know A little bit of victims of our own Tenure in that we spent 30 years telling people that we're not looking at those deals with some hair on them And and now we've got a dedicated fund to it. That's that's getting a lot done. So we've got to re-communicate the broader approach and capabilities and finally a lot of continued a lot of work on these very small B2B SAS companies that are down below where everybody else is willing to play, you know, starting about three million of ARR, maybe even a little bit less.
DT: Okay, so you have a hairy deal platform now.
JH: We do.
DT: That's what you call it. Okay.
DC: And I might build on what Jeremy said a little bit, because I think from the private equity firms, you know, they are becoming, you want to call it more thematic, they're focusing on particular kind of subsectors and getting deep on it. And what they're doing is reaching out to us and not only letting us know what they are spending time on, what they're focusing on, but they're also asking us what's in the pipeline, what's coming to market in six, nine, 12 months because they wanna be able to let us know these are the types of businesses that are coming to market that are gonna be great fits with us. We know the space, we may already know the company, have talked to the company before. It's a way for them to make sure the banks know what types of businesses or even specific companies that they're interested in, and that helps them to get on those shortlists, get the fireside chat. So it's regular calls that I have with private equity firms, particularly the BD folks is around what is coming into the marketplace and they can start to get prepped and ready and be able to have done some work prior to a process actually kicking off.
JH: That's right. We're spending a lot of time and doing that market work and everything so that, you know, when another firm might be at the IOI stage, we're dropping at LOI and detailing a very clear path to closing and timeline what remains, what we've completed, and all of that. And with a deep thesis and specialization, you can also get way out in front of opportunities. We closed US Lawns this year, which was a carve out from a public company, completely off-market, which is unusual, but a whole separate story there. And that was an eight-year relationship. And we've been knocking on that door for eight years about specifically why this one business fits so well for us and how we would work together. And the answer was always no until it wasn't. And the time was right for the parent to sell. And they knew that we had that deep conviction to have continued to reach out despite getting the stiff arm. But Leon, I think I interrupted you, so I'll stop.
LB: No, no, no, no. I just wanted to piggyback on what you guys were saying, basically, to say that, like David mentioned earlier, if you're getting to know the company when the teaser hits your inbox, I think in a competitive environment, it's a tough part in terms of getting to the finish line. And in our business in particular, which is very relationship-driven, I think having a chance not only to develop conviction in the industry and space, but also to develop relationships so that when David is building by your list, you know, the business owners says, you know what, I've been talking to Jeremy and Leon, and they need to be part of the people that you reach out to. And so, you know, this is the classic overnight success that takes 10 years to build, right? Like you prepare yourself with relationships and with work to be ready so that when the proverbial teaser hits your inbox like Jeremy said, you're ready. You've done the desktop work. You have conviction on the industry and on the company, and you can move quickly, and that gives you the edge on processes because as I'm sure you guys will agree, private equity in many ways has become a game of inches. So whenever you can gain an edge. That's oftentimes what makes a difference between winning the deal or not.
JH: And to tie back to the earlier point about the exits and business development being brought together, what we've really noticed is and continue to remind folks is that it's really important for us to partner with folks like David Clark and the others as counterparts. The sponsor coverage folks are your eyes and ears and their colleagues are often so specialized. They may lose track of things or, you know, everyone's bandwidth is limited. But, you know, making sure that you're working with them on the exit side maintains a mind share on their sell-side opportunities. And it's a virtuous loop to tie those two processes together. We all win. The more we communicate and collaborate, the better off we all are. I know that a lot of people say, well, I know that this person at Raymond James is the expert in this niche, but you want to always keep your sponsor coverage person as your point of contact and make sure that you know how to best work with that firm.
LB: Yeah, just to stay on this, because this is important. I think when you're interacting with folks like David and guys like Raymond James that are large and broad, But I think, you know, it's certainly not enough to just interact with the sponsor coverage. You do have to interact with the industry bankers. But at the same time, you know, the sponsor coverage can act as a catch-all net for deals that you might miss because you may not be in touch with all the industry bankers. So you really, I'm a big believer that activity breeds activity. So, you know, constant communication with the firm, the sponsor coverage, and the industry. I think it's a great way to develop relationships and find opportunities early on.
DC: I'll just reiterate, I tell my private equity relationships that that's what they need to do. They need to get to know our industry bankers. And really the main reason I say that is when we are selling a business and the deal team's putting together the shortlist to put fireside chats, if the lead banker on it has not had a conversation with a particular private equity firm about his sector, it's very difficult for me to convince him to have, give them a fireside chat. They're gonna go to who they have a regular dialogue with, who they know has a strong interest in the sector, who they've interacted with, both in processes and outside of it. So to get that kind of early looks, as a private equity firm, you need to be in front of those sector bankers. And that's where I always help, sort of make those connections, and encourage them as well.
JH: That's right. And the sector bankers are often going to be able to bring you add-ons that were too small for a firm like Raymond James to take on, but that can be their back door way to build a relationship with our portfolio company, especially those that have no incumbent or perhaps an incumbent with limited capabilities. And so they're able to turn their trash into treasure if you will, because it's a minuscule company, but it fits amazingly well. And that ingratiates them directly with our portfolio company's management and the board and our deal team. And they're so appreciative of finding those off-market opportunities without regard to size that it's a really important way to get in there and, you know, depending on the firm culture, it's not necessarily the sponsor coverage person's role to talk about these little bitty things that the industry bankers stumbled into at a conference, but are not remotely in their size range, but you can get into those weeds and uncover unique opportunities through those conversations.
DT: All right, that good conversation takes us to the top of the hour. We've got about 15 minutes left, so I'm going to start working in more questions from the audience. And please, again, avail yourself of the question feature on the control panel if you do have a question for one of the panelists. This question comes from an audience member for Jeremy. As you do oversee a team of originators, what do you measure in terms of KPIs? What kind of KPIs do you set for them? What are your expectations?
JH: We get that question a lot, and ours is perhaps backward from most, often speak with friends at other firms, and what I often hear at other firms is they're thinking top down. They tell them your job is to go out I mean, find books, find teasers, find opportunities. We flip that on its head. Our team is really focused on closed deals. Absence of that, LOI is signed. Absence of that, LOI is issued. At our firm, an LOI is a very fully-baked situation. We're very far down the road, and the originator has largely done the vast majority of what they can do to make that happen by the time that gets issued. And so that's a pretty good proxy, but more importantly, senior originators, experienced professionals need to be given the leeway to allocate their time as they see fit to yield outcomes. If you are judged based on the number of teasers, then just to be silly, you go get these lists that come out from business brokers and just log them all in the system and say, look, I grew the number of opportunities, not my fault if they didn't close, but conversely, if you have a deep relationship with that entrepreneur, the investment banker, You need to have that, you give them that rope to go really invest that time on those opportunities to help get them across the finish line, explain to that entrepreneur how we're going to be an amazing partner for them in their growth, explain to that banker how deeply we are, you know, how far we are done in our diligence and committee, you know, look them in the eye and tell them, we are going to close this for you in three weeks. We only need three weeks of exclusivity kind of thing. And so, for us, it's a bottoms-up approach about productivity rather than activity.
DT: Okay. Good advice there. Leon, anything to add on that front in terms of how you measure success in your origination efforts?
LB: You know, it's something that I've given a lot of thought. It's obviously very difficult too. I went through the same sort of thought path that Jeremy described in terms of, is it teasers, is it deals, calls? And ultimately, what I concluded was that to me, it's deals where the firm ultimately spends a good amount of time on. So if you bring a deal that is clearly not a teaser that David blasted, but something that you've been nursing, and the firm decides to spend time on it and go to management presentation, maybe spend a few dollars. You know, and I call that the sort of the conversion. That is usually to me a good measure of, of, you know, because if you think about it, we all have this immense sort of thousand of opportunities a year, funnels. And, you know, obviously in the case of Jeremy, they're a bigger firm. They do 50 deals, but we do a single handful of deals a year. And so just putting the KPI and closed deal is too high of a bar. But we do spend dozens of time on dozens of companies. And I think those are the ultimately deals that we deem to be of a high quality enough to spend time and money and to me that is a great KPI and I call those the sort of active deals conversion there's multiple ways to refer to them that's to me the true measure of that an originator is doing a good job.
JH: And totally agree you added on the part I left out that's right when the firm allocates resources to it whether that's time money whatever then that is the definition of quality they would not have allocated an entire deal team and been flying around and whatever just out of curiosity. That's because its quality with that regard to size or closing. So Leon's right, that's a really great way to measure it.
DT: Okay, and sticking with, well, we're getting a lot of questions, but I wanna ask Leon an important one. Because when I think of Leon, I think of someone who's kind of brought the practice of relationship building to just a higher level. And so I want to ask Leon, what are some of your top do's and don'ts when building relationships with business owners and others that you're looking to do transactions with?
LB: And David, number one, you're way too kind. And I appreciate you saying that and it means a lot. But look, this is something that you and I have spoken before, but what I say is that we are in this business, we're in the world of transactions. And I say be less transactional, you know, focus on building long-term relationships. Longevity in finance is the only way to achieve sustainable success, okay? And when it comes to business owners in particular, and I think it's also applicable to intermediaries and investment bankers, but I think folks generally respond well to genuine interest in them and in their business. And as investment professionals, our job is really to show curiosity about their companies and ways that we can deliver value. And this is the most important part, whether or not a deal happens and you know some relationships may be ready to take action quickly but as I think both David and Jeremy will agree most of you need to spend the time and for them to get to know you get to know your approach and really it's about developing trust which cannot be source to charge GPT or any technology. And face-to-face interaction, it's so valuable. And ultimately, there are many factors that drive business owners to decide whether or not they want to seek outside capital. So, you know, I don't think that there is a, I don't focus on convincing them to do a deal, but rather I try to understand what are their needs, what are their problems, and how can I solve them. Sometimes I can make an introduction where there is nothing in it for me, other than the fact that they can see that it creates more authenticity to the relationship. They say, look, you should talk to David about this because he can help you more than I can. And I think that ultimately creates the path to a transaction if that's what they're looking for. With intermediaries, like I said, the same principle applies. Prioritize consistency and respect. Demonstrate value over the long term and try to access our resources for people. I'm hoping, not expecting, that that will come back to you in time.
DC: Yeah, the other thing I'd add to it, to what Leon said is, you know, what I try to do and where I think you really build the relationship for me with taking private equity firms, which is my focus is, how's the family doing? You know, get to know them and, you know, Most of my meetings, my calls, the beginning part of it has nothing to do with business. It's just, how are you doing? How's the family doing, anything else? And it's interesting to lead that over time where you build these relationships and I'm now getting emails saying, hey, my son is a sophomore in college. He's interested in investment banking. Can you help him? But that's part of building that relationship is you get to know them. And I think, you know, I rarely will bring out a book or anything, it's really, you know, it's a conversation and you don't spend all the time on business, where you get right down to business, you don't get to really, you know, get to know each other from a personal perspective and that's really to me the most important way of building these relationships. To the point where people are comfortable, you know, calling you out of the blue and talking to you about something that may not be business-related at all, but that's what you want to be. That's where you want to ultimately get to.
JH: That's right. Both of what they said is absolutely perfect. Trust is built through consistency of behavior over time. In different events and scenarios, that's how they really get to know you, and adding value to other people is the way to go. It's humorous and somewhat cringeworthy when you see these just email blasts that people send out. We are a private equity firm, we want to buy your company basically, as a single-paragraph email. It's funny, but it's also kind of gross. This is somebody's baby that they've built over 30 years, and you're just gonna, it's not recognizing it with anything more than an email blast, but being that relationship, being that resource, you know, if somebody wants to hire an investment bank and run a process, bring them to, you know, Raymond James and help them do that, that's okay. You know, I'm not there to convince them to transact. I'm there to be a resource. And through that, the tie often goes to the runner. They want to run a process. If I've been helpful along the way and my bid is close enough to the other top bidder, because I was always a straight shooter and doing what was in their best interest versus mine, you'd be surprised how often that tips the scales. And so play the long game, be authentic, be a resource to the whole deal community, not just what's transactionally in front of you today.
DT: Okay we've got five minutes left so final call for questions and we do have one from the audience for Jeremy and Leon. At what point in the deal process do the BD professionals at your team transfer primary responsibility for a deal to the investment team and maybe for Jeremy also at what point do you get involved on the exit side, on the other end?
JH: It varies radically on the new investment side. It's probably the opposite of what most people think. Most BD people are trying to show their value and so they say it's my deal and they wanna stay as close to it as they possibly can. I would argue it should be the opposite. Ultimately, because of our scale, I don't sit on boards anymore now that I'm at Riverside and the deal team needs to build that relationship with management. It's very helpful to be at the management presentation because we're often critical drivers of the add-on work. And we really need to hear directly from management their tone and what they really are excited about, as opposed to all the growth opportunities listed in the book specifically. What is management? What fits? What doesn't? How do they want to go about add-ons? How involved do they want to be? How much heavy lifting do they want on us? But as soon as you can, you want to start to back out of the process. So they build their direct relationship. But also because due diligence can be exhausting and exhaustive, that at some point the banker or the entrepreneur might want to vent a bit about the diligence. And if I'm there every step of the way, they can't really vent to me because I feel like part of the problem. And when they have a good trusted friend with that intermediary, David could call and say, hey, this is getting a little ridiculous guys. Or, hey, this is fully approved by committee. We are literally sending you a draft of the purchase agreement tomorrow. We're ready to go. And you've got that ability to be that buffer and talk them off the ledge. But some deals are the other way. They're a personal transaction. I was buying a portfolio company directly from another private equity firm. And there was an accounting due diligence meeting. And I was conflicted, so I didn't go, didn't think I was going to add a lot of value. And the managing partner called me with the WTF conversation and said this deal is with you, not with Riverside. If you're not going to be there, then we're not moving forward. So I attended a whole bunch of detailed due diligence meetings to get it across the finish. So we do what we got to do to get it done but it was based on a personal trust as opposed to transacting with the firm on the wrapping up with the exit side, you know, it's an ongoing dialogue. We have a regular check-in with all of our portfolio companies on timing, their thoughts, who's been spending time, who's been helpful in the process in terms of intermediaries. And so we want to have everything ready to go in the event that management, the board decide that they want to pull forward that exit date, that it's not some kind of scramble. We already know who the right bankers are, who's been adding value throughout the process, and we're ready to turn on the exit team. So it's an ongoing dialogue. It's not a specific timeline.
DT: Okay, and Leon, we're just about out of time. So we'll give you the final word on the program and talk about the dynamics of handing off a deal if that's how it happens there.
LB: So honestly, in my current role, I'm jury, judge and executioner, so there's no, I originate, execute, and the ride and the exit. So it is less applicable. But honestly, I think that Jeremy captured what when I did have his role of originator, what the way I would have handled is the way which is you try to step out of the way at the right time and stay involved so that, you know, the other party bankers or business owners can come back to you and can act as a channel to help grease the wheels to get a deal done. So I think it was very well said. For my part, I wanted to go back to what we were talking about, developing relationships, and there's a great quote that I want to leave you all with, which is “Trust is a series of promises kept over time,” and that will be my send-off message. It's always good to see you. I'm honored to be sharing this panel. David, thank you so much for having us and putting this together. It's been a really great experience and a really great conversation. I hope to those of you in the audience, you have enjoyed it and found it useful.
DT: Thank you very much, Leon, and I promise that I will invite you to speak again on one of our programs. Awesome. I appreciate that. So I'm afraid we are out of time. I'd like to thank everybody for coming and spending some time with us today. I'd like to thank our sponsor, Sourcescrub, of course, for underwriting the cost and I'd like to thank our speakers for doing a great job on the program. Leon Bruges of 65 Equity Partners, David Clark of Raymond James, and Jeremy Holland of The Riverside Company. Everyone have a great rest of your day and good holidays.
DC: Thank you, David.
