Contrarian Thinking in Deal Origination: Why the Best PE Opportunities Rarely Look Obvious

One of the most underrated skills in private equity and M&A is not financial modeling, valuation, or even negotiation. It is the ability to think independently when everyone else is looking in the same direction.

Reading Howard Marks’s thoughts on contrarianism made me realize how relevant the concept is to deal origination. In investing, Marks argues that superior returns rarely come from following consensus. The same applies in sourcing deals. If every fund is chasing the exact same sectors, bankers, and “hot” companies, it becomes almost impossible to create differentiated outcomes.

The reality is that most deal flow in the market is crowded. The obvious software companies, healthcare platforms, or trendy AI businesses are already being tracked by dozens of funds, advisors, and strategics. By the time an opportunity becomes widely attractive, the valuation often already reflects that excitement. At that stage, the edge disappears.

The best deal originators think differently. They spend time looking where others are not looking.

That does not mean blindly chasing unpopular industries. Being contrarian is not about being different for the sake of it. It is about identifying disconnects between perception and reality.

In my experience, many of the most interesting opportunities exist exactly there — fragmented industrial businesses, niche B2B services, regional consumer brands, specialty manufacturing companies, or founder-led SMEs that institutional investors have ignored for years.

The psychology behind deal sourcing is surprisingly similar to public markets. When the economy is strong, everyone becomes aggressive. Processes get crowded, valuation expectations rise, and investors convince themselves that growth will continue forever. In downturns, the opposite happens. Activity slows, fear increases, and many investors stop looking proactively altogether.

Ironically, those quieter periods are often when the best conversations happen.

Founders become more realistic. Competition decreases. Long-term strategic discussions become easier to have. The challenge is emotional: it feels uncomfortable to lean in when others are becoming cautious. That is exactly the point Marks makes about contrarian investing. The hardest moments psychologically are often where the greatest asymmetry exists.

Good deal origination also requires resisting another form of consensus thinking: overreliance on intermediated processes. Many investors claim they want proprietary opportunities, yet spend most of their time reviewing the same options as everyone else. True origination means developing relationships years before a process exists. It means understanding industries deeply enough to spot future sellers before they officially become “targets.”

The best originators are not just market participants. They are observers of human behavior. They understand cycles, sentiment, and founder psychology. Most importantly, they stay curious when others become complacent.

In PE and M&A, edge rarely comes from doing the obvious thing better. More often, it comes from seeing value where others are either too distracted, too emotional, or too consensus-driven to look.

Reference:

Marks, H. (2011) The Most Important Thing: Uncommon Sense for the Thoughtful Investor. New York: Columbia Business School Publishing