Working with an Investment Bank: Important Services Investment Banks Provide
February 13, 2013
In my previous blog post I explored some key facts about investment banks — how they get paid, what they generally know, and how important you are to them. In this installment, I’ll spend some time examining all the things they can do for you — some even free of charge.
What Services can Investment Banks Provide?
As discussed in Part I of this series on working with an investment bank, investment banks and advisors can do a lot more than just sell your company. At the end of the day, they are looking to get paid on a completed transaction. That fee can be seen as pretty large in the context of a single transaction. However, in reality, it is paying for a laundry list of additional services they can and should provide while building the relationship to get hired for that ultimate transaction.
Let’s discuss a few key insights that most small, private companies should be aware investment banks can provide.
1) Insight into Industry Trends (With an Outsider’s Point of View)
Since you run your business day in and day out, you understand your market segment better than anyone else. Accordingly, it’s important to remember that those who are providing you capital or who are willing to buy your business don’t comprehend it nearly as well. That said, investment banks can pass along the general buzz they pick up from all of the people they talk with. In fact, they probably have prepared materials highlighting research, market, and investor views that you can request to get an outside opinion.
2) Competitors Insight
Just as investment banks can serve as a window into the trends guiding the rest of your industry, they can also give you insight into your competitors. After all, they’re talking with them, too. As a result, they know on a more informal basis what your competitors want, what their goals are, and what they are afraid of. It’s very reasonable to ask your potential bank what your competitors in aggregate are thinking.
3) Financial Sponsors’ Thoughts
Investment banks are also talking to your venture sponsors and potential investors. Accordingly, they have some good information on what sectors will continue to see investment inflows and which won’t, which firms may not have any funds left to invest, and who’s leaving which firm.
4) Financing Market Conditions
Especially as your business continues to grow, this piece of information can be very helpful. Investment banks are uniquely qualified to know what technical factors may hinder your potential financing. Does your business need to be bought all in cash? If so, does the potential investor or acquirer have it?
5) Access to Research
Do you want to know what all the big research firms are saying about your industry or your public competitors? Your investment bank knows. They are receiving all of the reports that are too expensive for you to buy. Feel free to ask them to send you copies. In fact, some of the larger ones may even have online access they can share if you ask.
6) Introductions / Business Development
Is there a company or contact you would like to meet? Maybe the banker knows or has a good relationship with them, already. Remember, they want you to grow, too. The bigger you get the bigger the fee will be later, so don’t be shy asking for a beneficial introduction.
7. Free Marketing
As referenced previously, a banker is meeting with so many people that he/she probably doesn’t have much time to go too deeply into any one sector. However, the banker continues to meet with potential acquirers (both strategic and financial) and has to show them new, private targets. Meeting with bankers regularly and telling them about your company allows them to market your business for free well in advance of a transaction.
8) Investment Banks as Your Customers
While I’m sure many of you have tried to pitch your service to an investment bank only to get a polite “no, thank you,” it doesn’t have to be that way. Especially if you are a private company, growing well and in an attractive industry, banks will be falling over themselves to be involved with your deal. (Remember, every deal is a marketing event for them, and missing one can be very bad for their business going forward). As such, you can negotiate with them to buy your service or even make them a case study on your website. Did anyone say co-branding/marketing dollars?
While you probably knew that investment banks and advisors provided some of the above, hopefully now you know at least a few more services that are available to you. In the third and final installment of this series, I’ll provide some best practices for interacting with bankers and advisers.
Read the other posts in this series on working with an investment bank: