Deal origination
What proprietary deal sourcing means and what the evidence supports
Private equity investors call almost 48% of their closed deals proprietary, and the researchers who recorded the figure had no means of checking it.
Private equity investors describe almost 48% of the deals they close as proprietary in some way, according to a survey of 79 investors by Gompers, Kaplan and Mukharlyamov that the Journal of Financial Economics published in 2016. The authors add that they had no means of checking whether those deals were truly proprietary.
Taken at face value, that share would leave the advisors who run auctions with a good deal less to do. Fund managers claim proprietary deal sourcing in their marketing, and sourcing providers promise proprietary deal flow in their pitches. A reader has good reason to ask what the author of such a claim means by the word "proprietary" and how the deals in question reached the buyer.
The 79 investors managed more than $750bn between them and answered between 2011 and 2013, so the figures are about 14 years old. Of the 79, 64 completed the whole survey and 44 had offices only in the US.
Proprietary deal sourcing has a strict meaning and a looser one
Used strictly, proprietary deal sourcing means a buyer negotiating directly with an owner while no competing process is running. Buyers also call such a purchase an off-market deal, because the company was never offered for sale to anyone else.
In practice the term stretches further. Firms use it for a limited process, in which an advisor invites a handful of buyers and keeps the sale quiet. They also use it for an early look, where one buyer sees the company before the wider process opens, and for a pre-emptive offer that takes a company out of an auction its advisor has already prepared.
Those arrangements involve less competition than a full auction. An advisor is present in all of them, and so is at least the prospect of rival bidders, which the strict meaning excludes.
The same survey asked investors where their closed deals came from. They said they had proactively generated almost 36% themselves and that investment banks had brought them 33%. Deal brokers and the investors' executive networks accounted for 8.6% each, approaches from management teams for 7.4% and other private equity firms for 4.3%. Those six figures add up to about 98%.
The share investors called proprietary, at almost 48%, is larger than the almost 36% they said they generated themselves. Respondents were therefore counting more than their self-generated deals as proprietary.
The paper does not say that a self-generated deal is an exclusive one. The self-generated share measures who made the introduction. A firm can find a company through its own research, spend a year getting to know the owner and still end up bidding against others once the owner hires an advisor.
The survey found that smaller and younger firms source more of their deals on a proprietary basis. The authors link the finding to the size of the target. Smaller firms buy smaller companies, while larger firms pursuing very large deals meet auctions. Younger firms also lean on their executive networks more often.
A further inference, which the paper does not make, is that small companies are sold by auction less often, because running an auction takes an advisor and a fee and the owner of a small company may never have hired an advisor.
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A search of independent research found no proof that proprietary deals are cheaper
The claim to test is that proprietary deals come with a lower entry price and a better return. A search of peer-reviewed journals and of published research from Bain, McKinsey, BCG, PitchBook and Preqin turned up no independent evidence for either.
The closest studies concern sales of public companies. Boone and Mulherin, writing in the Journal of Finance in 2007, and Fidrmuc and co-authors, writing in the Journal of Corporate Finance in 2012, each found no difference in premiums between auctions and negotiated sales. Neither study examined the sale of a private company, so the question stays open for private company targets.
The other benefits rest on argument and have no figures behind them. A buyer in a one-to-one conversation should have longer with the owner before making an offer, and should learn more about the business in that time. No auction timetable sets the date by which the offer must arrive.
The cost of a proprietary process is the number of targets a firm must work through for each deal it closes. Bain & Company estimated in 2017 that one or two of every 100 potential targets entering a firm's funnel end in a closed deal. The survey by Gompers, Kaplan and Mukharlyamov measured the opportunities a firm considers and found that six of every 100 close on average. Fewer than 24 of the 100 receive deep investigation and fewer than 14 reach a signed agreement. Larger and older firms carry a higher share through each stage. Bain's number is its own estimate, and the survey's is an average of what investors reported.
Neither figure isolates direct sourcing, and its effect on the attrition those figures describe has not been measured. We would expect a direct approach to increase the losses at first and to repay part of the cost later. A buyer who approaches an owner may find that the owner has not decided to sell and may be years from doing so. The firm would then pay for many conversations that produce nothing in the short term.
A firm that has known an owner for years should in return stand a better chance of being the only buyer the owner calls when the decision to sell comes.
Bain's view in the same article was that attractive proprietary deals had become harder to source than ever. It cited a late 2016 Preqin survey in which 36% of buyout managers said attractive opportunities were harder to find than a year earlier and 2% said they were easier. Bain's recommendation was to widen the circle of advisors and influencers a firm knows, which it judged the most productive route to new opportunities.
Bolt-ons are the most common UK private equity deal
KPMG reported that bolt-ons made up 59% of UK private equity deals in 2025, as investors built scale in the platforms they already owned. It put the year's total at 1,751 deals, 10% fewer than in 2024, and said bolt-on volumes were 5% below their historical average. Deal value rose 3.5% to £176.6bn, and the 298 buyouts were the most since 2021.
The buyer in a bolt-on search already owns a platform in a sector and wants smaller companies that fit it. We infer that this is the setting in which approaching owners directly is practical, because the list of possible targets is short enough to work through by name.
The share of UK private equity deals that were proprietary in the strict sense is unknown. The test for any single deal is whether another bidder was at the table.
