Next-level deal sourcing: What drives proprietary deal flow in the age of AI?

Interview with Dieter Will, neomerge

M&A Review: Mr Will, your M&A advisory boutique neomerge regularly advises financial investors on buy-and build mandates. Why is deal sourcing so crucial for these investors and for you as an M&A advisor?

Dieter Will: Without systematic deal sourcing, there are no transactions. Financial investors rely on a proprietary deal flow to generate attractive returns. For us as M&A advisors, a robust deal origination process is the basis for presenting attractive targets to our clients. This is particularly challenging in the tech SME sector. Companies are less visible, often entrepreneur-led and not actively looking for a buyer.To be successful here, you have to be proactive, creative and, above all, structured in your approach.

M&A Review: What approaches to deal sourcing do you encounter?

Will: There are three main channels for the SME segment. First, the foundation is laid by maintaining your own network of M&A advisors and multipliers. This often leads to approaches in the context of sell-side projects. Although this is rather the exception, opportunities occasionally arise through referrals. The second component is the cultivation of the entrepreneur network, which creates proprietary situations. Thirdly, structured deal sourcing with focused outreach has become increasingly important in recent years.

M&A Review: What are the challenges associated with these approaches?

Will: Above all, the entrepreneur network model is not scalable and has limited application, as it depends on regular participation in events and intensive maintenance of this network, which requires a very high time investment. For this reason, the third channel of structured entrepreneur outreach is becoming increasingly important.

M&A Review: What does this entail in practice?

Will: It is key to present a substantial case to the entrepreneur and demonstrate that you have thoroughly researched their company and business model. It is equally important for M&A advisors to demonstrate in-depth knowledge of the relevant industry and the potential fit with the buyer. Next-level deal sourcing: What drives proprietary deal flow in the age of AI?

M&A Review: What part do tech and AI play in the process?

Will: A multi-channel approach to outreach, both physical and digital, is essential nowadays. A certain amount of persistence also pays off over the long term. Furthermore, a proprietary tech stack is indispensable. With professional CRM, AI databases and semi-proprietary AI tools based on language models (LLMs), M&A advisors can not only create long lists of potential target companies, but also control the entire process. Another example of how LLMs can be used is to personalise outreach. But it‘s always important to keep an eye on quality control, which should still be done manually at critical points. Models are developing rapidly, yet there is still a lot of room for improvement.

M&A Review: How will deal sourcing change for private equity investors focusing on medium-sized tech companies

over the next five years?

Will: More investors will professionalise their deal sourcing setup, as private equity without proprietary deal flow rarely generates excess returns. This is likely to further intensify competitive pressure surrounding proprietary deals. Technologically, we expect structured, AI- and tech-supported outreach processes to improve significantly in quality and become even more prevalent. At the same time, personal contact with entrepreneurs is becoming increasingly important as a component of a thriving origination strategy. These two worlds must be combined in order to besuccessful in the future.