Proprietary sourcing vs banker-led auctions. Where deals actually come from.

The pricing differential.

The clearest argument for proprietary sourcing isn’t qualitative. It’s mathematical. Average buyout multiples for transactions above $250M of enterprise value have run above 11x EBITDA through 2024 and 2025.^[1] Drop into the $25M–$100M lower-mid-market range, where most deals are sourced outside formal processes, and multiples typically compress to 6–8x.^[1] That is a three-to-five turn of EBITDA difference, every time.

A platform paying 7x for a $4M EBITDA add-on and rolling it into a portfolio company that trades at 11x is creating $16M of paper enterprise value on the math alone — before any operational integration. That math doesn’t exist in an auction. The seller’s banker has already priced it in.

Why auctions price out the upside.

The function of a sell-side banker is to maximise outcome for the seller. They do that by creating optionality — multiple bidders, parallel processes, a tight timeline, a synthetic sense of scarcity. Each of those mechanisms takes money out of the buyer’s pocket. The marginal bidder sets the price, and in any well-run process, the marginal bidder is paying at the top of their range.

The buyer’s only structural advantage in an auction is informational — sector knowledge, integration thesis, financing certainty. Those are real edges, but they are usually not enough to overcome the four or five turns of multiple compression available outside a process.

What “proprietary” actually means.

“Proprietary deal flow” gets used loosely in PE marketing. The honest definition is narrow: a transaction where the buyer is in a one-on-one conversation with the seller, with no banker running a parallel process and no other formal bidders. That is rare in the upper-mid-market and routine below $25M of EBITDA.^[4]

The mechanisms that produce real proprietary deal flow tend to cluster:

• Founder-direct outreach. Owner-operated businesses with no incumbent banker relationship, contacted directly with a credible thesis.
• Platform-industry network. The platform company’s existing customer, supplier, and competitor relationships surfacing transition conversations.
• Sub-banker advisors. Local CPAs, attorneys, M&A boutiques who advise owners but don’t run competitive processes.
• Signal-triggered timing. Catching an owner at the moment they start thinking about transition — before they have a banker.

The operational problem.

All four of those mechanisms require active sourcing. None of them produce inbound deal flow. A platform that wants $20–$50M of proprietary add-on revenue per year typically needs to be in active conversation with 100–200 founder-owners across a thesis at any given moment — which means it needs to have touched 1,000–3,000 unique targets with credible, signal-anchored outreach to surface that conversation pool.

Most mid-market platforms have a corp-dev lead and maybe two analysts. The math, again, doesn’t close. Either the platform shrinks its thesis to fit its sourcing capacity (and accepts the deployment-pace cost), or it adds bodies (linear cost, sub-linear output), or it builds the canvas function as infrastructure instead of headcount. Increasingly, it’s the third option.

The discipline that matters.

Proprietary sourcing is not a magic bullet. It demands more patience than auction work, the conversion rate is lower per target, and many of the conversations go nowhere. But every conversation that does convert lands at a structurally lower price than the auction alternative. Over a 3–5 year hold period, that multiple gap is the entire deal.

The firms that win the proprietary game don’t do it by being better at one conversation. They do it by being in twenty of them simultaneously while everyone else waits for the banker’s teaser to land.