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Business Owners

5 Questions for Investment Bankers on the First Call


Recently, we featured an article about what investment bankers tend to ask CEOs on the first call.

But what questions for investment bankers should you pose?

CEOs of small- or mid-sized businesses need to exercise diligence before raising capital or engaging in M&A; the days of blithely picking a local investment bank are long gone.

Most SMBs don’t have deep relationships with big-time investment banks, which only adds to the challenge. Yet expanding businesses need to be fed and investment bankers — when chosen carefully — can be a great source of financial nutrition. Here are five key questions for investment bankers — as CEO, you should ask these on the very first call.

1. “What’s my business’s valuation range?”

Get directly to the point and find out what someone would pay for your business. In the end, all valuation is subjective and your business will only fetch what buyers or lenders think it’s worth. This isn’t the first question, but it’s one of the most important — a really good investment banker is on top of trends, market expectations, multiples, and other important factors of valuation. Just as critically, this is a chance to sober up about your own expectations.

2. “What recent experience do you have with deals in my industry?”

The most attractive investment banks will be boutiques that specialize in two areas: small- and mid-sized transactions, and your niche or industry. If you’re looking to sell or acquire, first find out if the investment bank has a successful track record with M&A. If you need to recapitalize, however, that M&A experience won’t be much help.

Relevant transaction experience might be the most important qualification for your investment banker (other than honesty and fair dealing). Though it may seem small, finding an equity expert who’s fluent in your industry’s terminology is a great sign that they have the relevant contacts, experience, marketing expertise, etc. Familiarity matters.

Size matters too. An SMB valued at $150 million isn’t going to get high-level treatment from firms that specialize in ten-digit transactions. Dig into the details about similar deals. If the banker doesn’t answer directly, find ways to ask again; make sure they appreciate your business and can sell you to potential investors.

3. “Can you tell me about who on your team will work on my business? Who does what and why?”

Investment banks matter, but investment bankers matter more. Find out if you’re getting stuck with fresh, junior staff or if the senior bankers — those with the best relationships and a history of producing — will handle the outreach. This won’t always be possible depending on your company, though.

Longer deals can take up to nine months, which means a lot of leg work from others in terms of marketing preparation, legal, research, due diligence, buyer/investor outreach, etc. If you’re looking to sell, find out who handles closing and how fast that should take place — longer closings leave more time for relationships or markets to change for the worse.

4. “What’s your fee structure like, and why?”

Standard advisory firms, especially M&A, blend an up-front retainer with a commissionable rate (“success fee”). You’ll often read about large retainers reducing incentive for the investment banker to do a good job, and there may be some truth to that. But the most confident/successful firms can afford to charge retainers because of their stellar reputation; don’t get caught in a commission numbers game. If you’re uncertain about the response, follow up by asking for a list of references to check out.

5. “Why should I pick you over your competitors?”

The investment world of 2016 is very different than 1986 or even 2006. Thanks to information technology, social networking, and online platforms, very few companies possess any serious advantages in terms of investor access, Sell Books, or deal lists. This is where you find out about personality, chemistry, and tenacity. Find out what makes this banker different.

Moreover, if your investment banker can’t sell their services to you, what makes you think they can pitch your business to investors or lenders?

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