Deal Origination
Deal Origination from Primary Sources: The 7-Step Methodology
The usual way to source deals starts with a database: filter by SIC code and geography, export a list, and start calling. The database is a third-party copy of stale information. SIC codes assigned at registration are wrong for roughly 40 percent of businesses because companies evolve but their classification codes don't. Every buyer using the same database finds the same companies. Over 90 percent of lower middle market companies have never been indexed by any commercial M&A database. The average PE firm sees only 16.5 percent of relevant deals in its target market.
Our method turns this around. It starts with primary sources, not databases. It classifies companies by what they do today, not by registration codes. It finds the warm path to each owner before anyone reaches out. And every approach goes out under the buyer's name, not through an intermediary. Here is how the seven steps work.
Deal origination from primary sources means reading the regulatory filings, licenses and public records behind a thesis, spotting the signals that a company may be ready to transact, finding the person who decides, mapping the warm path from the buyer's team to that person, and approaching them under the buyer's name as a principal. The result is a pipeline of companies no commercial database has indexed.
THE SEVEN STEPS
From Thesis to Qualified Conversation
Primary Source Ingestion
Why do SIC codes fail? Because a manufacturer that pivoted to distribution five years ago still carries its original SIC code. A septic company that expanded into grease trap services is classified the same as one that only pumps residential tanks. Roughly 40 percent of businesses carry inaccurate SIC classifications. Commercial databases inherit these stale codes and propagate them. Every buyer filtering by SIC code builds a fundamentally flawed target list.
We go around them. For each thesis we identify the regulatory filings, licensing databases and government records that cover the market. For propane distribution: DOT compliance data and state regulatory filings. For healthcare services: CMS provider enrollment files and specialty certification registries. For defense subcontractors: USAspending.gov contract filings. For home services: city-by-city map sweeps across entire regions to find physical businesses that exist nowhere else online. The sources change with every engagement because every thesis needs different evidence.
Transaction-Readiness Signal Detection
Knowing whom to approach matters. Knowing when to approach matters more. We track every target for converging signals that point to a transaction: owner age approaching retirement (60+), key executive departures that create succession gaps, debt maturity approaching that forces a recapitalization decision, customer concentration risk (a single customer representing 30 percent or more of revenue), a geographic expansion plateau suggesting the owner has taken the business as far as they can, and competitor M&A activity in the sector that signals consolidation.
No single signal is sufficient. What counts is convergence. An owner aged 62 combined with a key executive departure and a competitor acquisition nearby is a higher-probability target than any single data point. When signals stack, that company moves up the list for the next round of outreach.
Contact Identification Below Org Level
We do not stop at the company. We find the person within it who has authority over a transaction decision. In a 20-person HVAC company, that is the founder. In a 200-person family-owned manufacturer, it may be a second-generation operator who runs day-to-day while a non-operating parent retains veto authority. In a partnership, it is the managing partner with buyout clause authority.
That person is identified from primary sources: state filings that list registered agents and officers, trade association directories that list individual representatives, the management team's public professional profiles and tenure, and company website team pages. It is verified, individual-level research built for the engagement, not a purchased contact list.
Trust Path Mapping
This is the step that makes an approach warm. Before anyone reaches out, our relationship graph maps the connections between the buyer's team and every target's decision maker: shared employers (current and former), co-investors in the same fund or deal, shared attorneys, accountants and wealth managers, industry association co-membership, university alumni networks, board overlaps and conference co-attendance. The buyer's team confirms each real connection.
Each path is scored by trust strength. A shared employer where both individuals worked on the same team scores higher than alumni from the same 40,000-person university. The strongest path anchors the approach. Connection-anchored outreach converts at 5 to 15 percent. Generic intermediary outreach converts below 2 percent. That gap is structural: it is the advantage of starting from a warm path.
Outreach Drafting as Principal
Every note goes out as the buyer, never as an intermediary. This isn't a stylistic choice. It's structural. Owner-operators who built a business over decades want to speak with the actual buyer, and they ignore intermediaries. The note opens with the “why now”: why this buyer is reaching out to this specific owner at this specific moment, grounded in the warm path and the company's actual operations.
Each note is written one-to-one from sourced facts: geography, fit with the thesis, sector and the shared connection. It reads as though a senior associate spent 15 minutes researching the company, because the research behind it is real. Template notes with the company name swapped in draw response rates under 2 percent. Connection-anchored notes from the principal draw 5 to 15 percent.
Program Execution
The program runs under the buyer's name across every channel, typically 3 to 4 touches over 2 months. Volume is held to 50 to 100 highly targeted approaches a day, not thousands, because owners notice volume and answer care.
Replies are routed at once. Interested owners (“I'm interested, let's talk”) go straight to the buyer's deal team and into their CRM. “Not now” answers are tagged for follow-up in the next cycle. Owners who decline are taken off the program. The buyer's job starts at the first conversation. We handle everything before it.
Complete Data Transfer
At the end of the engagement, the buyer keeps the work: the complete target universe with its classification data, the warm path map with every confirmed connection, the outreach materials, the response log sorted by outcome, call notes and conversation summaries, and a CRM-ready export in the buyer's preferred format.
Many clients use the first engagement to learn the method and build internal capability alongside it. Others run recurring programs, because the advantage compounds when the work runs continuously.
What This Is Not
Not outreach software. Outreach software runs the list, the message and the plan you bring to it. We build the list from primary sources, write each note, map the warm paths and run the program across every channel. The software is one small part of the work.
Not a deal sourcing database. Deal databases aggregate company data from secondary sources and track broker-presented deals. They serve the same subscribers and produce the same target lists. We start from primary regulatory sources those tools don't read, classify by actual operations rather than stale SIC codes, and produce target universes that no database search returns.
Not a contact database. Contact data vendors sell prepackaged lists scraped from public sources, and every buyer buys the same list. We identify decision makers from primary sources specific to the acquisition thesis.
Not a CRM. The work produces qualified conversations and feeds them into the CRM the buyer already uses. It fills that CRM with deal flow no one else has.
Not a one-time list purchase. Buying a list of 5,000 companies from a data vendor gives you stale records classified by registration-era SIC codes. We build a fresh, classified universe, with its warm paths mapped, from primary sources for every engagement.
Frequently Asked Questions
Primary regulatory sources that change with every acquisition thesis: state licensing databases, DOT compliance records, CMS provider enrollment files, trade association directories, manufacturer representative registries, ISO certification databases, fleet registrations, PPP loan records, government contract filings (USAspending.gov) and individual company websites. We build the research from scratch for every engagement instead of starting from a commercial database. Over 90% of lower middle market companies never appear in those databases anyway.
Broker marketplaces connect intermediaries with buyers, and every subscriber sees the deals an intermediary chose to list. Deal databases aggregate company information from secondary sources and web data, not primary regulatory filings. Both serve the same subscribers, so every buyer using them finds the same companies. This method goes the other direction: it finds companies in primary sources, including companies no commercial database has ever indexed.
An internal BD hire costs $120,000 to $180,000 annually plus benefits, takes three to six months to recruit (average time-to-hire for senior commercial roles exceeds 44 days for the search alone), and another three to six months to ramp. They research companies one at a time in the same databases competitors use. We read thousands of primary sources at once, classify targets by actual current operations rather than stale SIC codes (wrong for roughly 40% of businesses), map the warm paths from your team to each owner, and write each note one-to-one around the strongest shared connection. One program matches the sourcing output of a junior team, and the buyer keeps all of the work.
No. Owners receive a note from the buyer's team that names a specific shared connection. It reads as though a senior professional on the buyer's team researched the company before reaching out, which is what the research makes possible. There is no outside branding and no automated signature. The owner answers the buyer's deal team directly.
The universe follows the thesis: a niche sector in a few states yields far fewer targets than a national platform build, and in fragmented services sectors most of the independent operators are companies that commercial databases have never indexed. Every target is classified by current operations and has its warm paths mapped before outreach begins.
Fragmented, owner-operated sectors where commercial databases are weakest: services businesses (HVAC, plumbing, electrical, environmental, collision repair), specialty healthcare (home health, behavioral health, dental, veterinary), industrial distribution, regional operators, franchise systems, niche manufacturing, defense subcontractors and government services. PE sponsors increasingly favor buy-and-build strategies in these deeply fragmented sectors because of their recession-resistant demand. The more specific and long-tail the sector, the greater the advantage.
The buyer keeps the work: the complete target universe with its classification data, the warm path map with every confirmed connection, the outreach materials, the response log sorted by outcome, call notes, and a CRM-ready export.
Related
Compare principal-led origination with a traditional buyside intermediary side by side, including Lehman-formula fee structures and buyer-type scenarios.
See the deal origination page for engagement details and deliverables.
See how the same method applies to customer acquisition for PE-backed portfolio companies.
The best targets are not in any database. The question is who reaches them first.
Where the research and the program live: the Praxis Rock Platform.
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