NEWSLETTER, Vol. 1, No. 3, September 2007

Let's Source a Deal: Part II
By Robert Befidi, Jr. and Mark R. Sinatra

In Part I of this series, we shared our perspective on mainstream deal sourcing. In this second and final installment, we will address proprietary deal sourcing.

Unlike mainstream deals, proprietary deals are transactions that do not involve a sell-side advisor, such as an investment bank or business broker. The main benefits for buyers are confidentiality and limited competition on proprietary deals. In addition, there are several reasons why a business owner would consider selling his/her business on a proprietary basis. First, business owners can save money on investment banking fees, which range from 2 to 7 percent or more of the total transaction value, with some banks requiring a $1 million minimum fee. Second, since many business owners have never sold a business, they will work with their trusted advisor, usually an accountant or attorney, to lead the process rather than working with an investment banker with whom they are not familiar. Finally, as business becomes increasingly competitive, owners are often concerned with the release of confidential information or details on the sale of their business. Therefore, a proprietary deal allows them to control the process and limit the number of involved parties.

Proprietary deal sourcing strategies can be broadly divided into two parts: external strategies and internal strategies.

External strategies involve identifying, managing and retaining relationships with buy-side advisors. Buy-side advisors are business intermediaries who execute targeted searches on behalf of their clients, which can include both strategic and financial buyers. The benefits of using a buy-side advisor are that it allows the buyer to focus on its core competencies while leveraging the expertise of an outside group which results in high quality, high volume proprietary deal flow. The downside of this strategy is the ongoing cost of retaining the services of a buy-side firm. Ultimately, buyers should ensure that their buy-side advisor is able to articulate their unique value proposition to target companies.

Generally considered the most resource-intensive and difficult deal sourcing approach used by acquiring entities, internal strategies for proprietary deal sourcing involve directly contacting business owners. Internal strategies include a set of practices, processes and activities centered on targeting, identifying, and acquiring great companies that are “not for sale.” Starting with an investment thesis, based on industry, geography, or company type, buyers can find these deals with a significant amount of targeted and opportunistic networking, diligence, creativity and patience. In practice, this is achieved by doing the following:

  • Networking with business advisors such as attorneys, accountants, estate planners, and consultants; joining industry and regional business associations; attending relevant trade and industry conferences and soliciting the help of friends and family.

  • Providing incentives for referrals; at Gordian Capital, we offer a finder’s fee for an introduction to the owner of a company that is acquired by the firm.

  • Implementing processes for identifying and communicating with business owners of companies of interest.

  • Devoting resources to pre-screening, researching and staying current with developments in targeted industries.

About Gordian Capital: Gordian Capital LLC (“Gordian”) is a private investment firm that seeks to acquire and actively operate a privately-held company with revenues of $5-$50 million located in the U.S. or Canada. Gordian is unique in that its managers will assume senior management responsibility of the acquired company; thereby offering an ideal exit opportunity for owners who seek to partially or fully remove themselves from day-to-day operations. Gordian’s primary objective is to continue the long-term growth of the acquired company, while ensuring that the owner’s legacy and employees’ welfare are maintained.

To learn more about Gordian, please visit

Please feel free to contact us to learn more about Gordian Capital, LLC or to discuss a specific investment opportunity. All material is kept strictly confidential and returned upon request. We will review and provide feedback for all opportunities we receive in a timely manner; generally within one business week.

Robert Befidi, Jr.
Managing Director
Direct: (646) 620-1552

Mark R. Sinatra
Managing Director
Direct: (646) 620-2054

© Gordian Capital, LLC. All rights reserved.