By Steven Keeler
A good investment banker can play an invaluable role in executing a successful sale of a private company. They are especially important if your company is considering a limited or broad “auction” process to generate interest from multiple buyers and to test the market. But they can even be valuable in negotiating and executing a deal with a preemptive or identified buyers. Interviewing investment bankers is a great opportunity to get free advice and opinions about the market and a sale.
As with lawyers, accountants and other advisers, a company should always do some shopping for an investment banker that will provide the right “fit” and come with recommendations from other trusted advisers. In meeting, teleconferencing or Zooming with investment bank prospects, consider the following questions that in our experience can go a long way to “breaking the ice” and providing for a more meaningful and revealing discussion.
1. Current Market Dynamics and Outlook. Conversations with investment bankers do not cost you anything but time, and they can provide you with invaluable market intelligence.
a. What’s your assessment of the current private company sale market, both “macro” and for my industry vertical and a business with my company’s profile?
b. To what extent does company or deal “size” matter from the standpoint of valuation multiples and deal terms, and what factors beyond revenue and EBITDA can produce a higher multiple or sale price?
c. What is your experience with, and how do you advise clients in selecting, strategic (or corporate) versus financial (private equity) buyers (including minimizing closing risk, getting a premium price, retaining some “rollover” equity or ownership, management and other factors)?
d. Can you talk about transaction timing, including when to go to market and how long it can take?
e. What changes are you seeing or do you expect in legal or deal terms (including seller indemnification, earn outs, and other terms)?
2. Positioning or Staging My Company for a Sale. You will expect and want the investment banker candidate to understand your business and industry and demonstrate how it can put your company in the best light.
a. What factors are you seeing drive buyer interest and higher valuations (including financial performance, customer concentration, market position, management talent, technology, and others), and can you provide examples of ways in which you have developed a good company “story” in the past?
b. What are some of the classic “issues” (or weaknesses or threats in a “SWOT” analysis) that you run into and how do you develop a company story to overcome those?
c. What information will you need to prepare your confidential investment memorandum (“CIM”) and financial model for my company?
d. What financial, market and legal aspects of a company will be most important in buyer due diligence?
e. How do you typically work with a company’s inside management and outside lawyers and accountants and what are their respective roles?
3. Designing and Executing the Sale Process. In addition to an investment banker’s experience, it is important to get a feel for their approach to an “auction” process.
a. How do you determine whether a broad versus limited or more narrow buyer outreach is appropriate or optimal?
b. In ranking several interested buyers, how do you advise clients on how to weight the various positives and negatives in multiple buyer indications of interest (“IOI’s”) (including valuation, strategic rationale, financing of the deal and other factors)?
c. Do you ever preempt a broader auction process with a limited outreach to a few select buyers to get a “market check”?d. What types of company information do you initially provide prospective buyers so as to narrow the field and how to you manage the timing of the release of sensitive customer and other information?
4. Can You Talk a Little Bit About How Your Team Works? Like any outside adviser, investment bankers are people, so the selection of an investment bank often comes down to “chemistry” and their responsiveness, as most of the vetted investment banker prospects will have a track record and experience.
a. Who on your team will be doing and be responsible for what?
b. Can you describe the calendar for your approach and management of (i) your pre-process planning and company preparation, (ii) buyer outreach and process “control”, (iii) analysis of competing IOIs, (iv) support and coordination of buyer due diligence requests and negotiations, (v) our selection of a buyer (and point at which you go exclusive with a letter of intent (“LOI”) with one buyer, if ever), and (vi) the deal closing?
c. Does your firm and proposed team have adequate “bandwidth” to handle our transaction and how does it compare in size and other respects to other deals in your pipeline?
d. Can you provide CEO references from companies you have worked with in the past?
e. What can you tell us about the “market” for investment banker fees and how do you determine and propose yours?
There are many great investment banking firms out there ranging from large institutional groups to boutiques. Some are generalists, while others have specific industry experience. But at the end of the day, a seller’s selection will be driven as much by “feel” and the people involved as the investment bank’s size, deal sheet or pedigree. You should always get your management and other outside advisers to chime in on your ultimate decision, as they will have to work with the selected investment bank.
© Copyright 2021 by Keeler PLC
All rights reserved.
Terms of Use & Privacy Policy
Design by NexFirm