Perspectives · Volume I · 01
Origination Ahead of Process
A sell-side process is built to find the buyer who will pay the most. What is available before one starts, and what it costs to be there.
Written for sponsors and family offices acquiring direct.
The population
Companies between $10m and $300m of enterprise value are held, in the main, by the people who built them, the family that inherited them, or a sponsor holding past its intended term. Ownership is concentrated in one or two decision-makers. The decision to sell is made once, and the person making it has no practice at it.
A small share of that population is in a process at any moment. The rest are reachable and not for sale. That second category is where the difference between buyers is decided, because an owner who is not for sale today is frequently eighteen to thirty-six months from being for sale, and the trigger sits outside the business. A birthday. A death. A change in the treatment of capital gains. A minority partner who wants liquidity and will not wait.
None of those events are visible from a screen. All of them are visible in a conversation held before they happen.
What the process is for
A banker's mandate is price discovery on behalf of the seller. The book, the management presentation, the staged bid deadlines — each is designed to convert a private asset into a competitive one. The design works, which is why sellers pay for it.
By the time the book exists, the seller has an adviser, a range in mind, and a list of parties receiving the same document on the same morning. Every buyer on that list has the same information and the same six weeks. What separates them is willingness to pay, and the process is engineered to find whoever is furthest out on that measure.
Diligence does not recover the position. Sharper analysis of a shared document produces a more confident bid at the same price, or a lower one that loses. The advantage that matters was available earlier, and it was not analytical.
The cost of being early
Coverage of a population that is mostly not for sale is expensive in the way that is hardest to fund: it consumes senior time now and produces nothing this quarter. A partner who spends two days a month on owners who are thirty months out is spending it against a fund that is judged on deployment.
So the work is either delegated to people the owner will not take a second meeting with, or it is dropped and replaced with an intermediary list. Both routes end at the same place. When the process starts, the buyer arrives with everyone else.
The firms that hold the position pay for it deliberately. They treat origination as a standing cost of the strategy rather than an activity that begins when capital is committed, and they accept that most of the conversations produce nothing at all.
What one relationship changes
An owner who has known a buyer for two years before deciding to sell does not run the same process. Sometimes there is no process. More often there is a short one, with a party who is already inside it and a range that was set in conversation rather than in a range letter.
The effect lands on entry price, and entry price is the term with the most leverage over the return. It is also the term least improved by everything that happens after the book is issued.
The work sits in the two years before the decision, with people who have no reason yet to take the call.