Investment Banking has a dirty little secret. If you’ve ever worked with an investment bank or listened to a pitch, you may have flown right by it or mistaken it for a badge of honor. Investment banks use past experience to demonstrate future competence, and rightfully so. There are times, however, that this goes into the realm of false advertising.
The Industry Team
You may have noticed that many banks have different industry teams. For example, they might have a team dedicated to healthcare, technology or business services. Most of the time, banks use this to lend credibility to their familiarity and dexterity within an industry.
The dirty little secret is that many investment banks change industry teams frequently. Today’s Managing Director of Healthcare may very well be the Managing Director of Business Services tomorrow.
I am not implying that a managing director in this position lacks credibility. In fact, he or she is probably very credible. But that credibility lies in the individual’s experience as an investment banker who does quality work, not the contextual industry of his or her clients.
The Industry Expertise
Of course there is sometimes truth behind a team’s dedication to an industry. Some banks specialize their entire practice around specific industry experience and relationships. There is no questioning the authenticity of a group that concentrates all of its efforts toward transactions in a particular industry.
However, this type of specialization brings at least one drawback. These firms are often beholden to their relationships with buyers in the space. This can present a conflict of interest with the client. Think about it: if the health of your business depended solely on deals with a specific group of buyers, would you risk those relationships, even for a client? Of course not.
To make sure you are getting a fair perspective, it is important to look at the firm’s deal history. Are all of its deals with one or two buyers? If so, that may be a reason for caution.
What You Really Need
I am certainly not bashing industry specialists. The truth is, industry specialists are very helpful in M&A. SDR even has one, specializing in the pet industry. Carol Frank has access to information and contacts that make it much easier to get deals done. That is definitely a feather in our cap when we take pet companies to market, but not the only feather in our cap.
With that said, what makes an investment bank worthwhile is its ability to add value. To put it bluntly, an investment banker is the only consultant you will ever hire that can change the outcome of your career by millions of dollars in just a few months.
Regardless of industry specialty, any banker you hire should meet these criteria:
- You enjoy spending time with them. Believe me, you will see plenty of your bankers before it’s all over.
- You have genuine trust. You need someone who does what they say they will do.
- Professionalism. All too often, a banker meets the above criteria yet lacks the horsepower to do the necessary modeling, production of materials, and outbound contact to the marketplace. A good banker will be able to help you with projections, create an LBO model, produce outstanding marketing materials, and run a process with potentially hundreds of buyers or investors. All the while, the banker must remove emotion from the process, carrying the brand you have built to the market in a way that honors you and your company.
If your investment bank has each of these three traits, you have maximized your likelihood of achieving your goals through a transaction. If you have an industry specialist or team that lacks these qualities and abilities, hold on for a bumpy ride.