Proprietary Deal Flow (PDF), a concept very much prevalent in mature economies, is still unheard in the emerging markets.
Proprietary deal flow is a process in which, an acquisition search firm or an investment bank tries to find a target (for the buyer) that has not been approached by any other bidder/not on auction. The PDF deal has following salient features. The prospect/target company
- is not for auction
- is not represented by any other acquisition firm/investment firm for finding a suitable buyer
- the buyer has exclusivity in making bid/offer
In crux, PDF is an art of finding virgin targets which are unexplored and offer a better deal to the buyer. In countries like US, one can find a lot of acquisition firms / investment firms that have pioneered the concept of PDF. Most of the experienced PE firms put such deals on their radar.
- Buyer can get the seller at a lower multiple valuations which is not the case in auction. Since, buyer is the only bidder, deal can be better negotiated in acquirer’s favor.
- Buyer enjoys the exclusivity in deal negotiations in terms of direct access to board members, financial data. The buyer’s in-house team can handle the deal process without the services of investment bankers.
- Buying the company at price lesser than the average industry rate ensures higher return to investors.
PDF is a simple model offered by small to mid-size acquisition search firm or boutique investment banks which still work on a traditional yet pure form of investment banking and conduct only buy-side search. Modern investment banks have made foray into financing, research, valuations and other add-on services to boast a complete package of M&A advisory.
