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How To Select Your Investment Banker

June 3, 2019

Selecting the most appropriate investment banker is key for achieving a successful deal.

As an investment banker for a boutique firm providing merger and acquisition services and corporate finance advisory services, we are often asked to “pitch” our services to prospective clients as they try to figure out who to hire.

For a business owner contemplating hiring an investment banker, selecting the most appropriate one for your situation and who will provide high quality advice are key. It could mean the difference between a failed versus successful deal, or at a minimum, a poorly executed deal with a low valuation, troublesome terms or high cost of capital versus a well executed transaction.

A troubling issue is that most business owners do not maintain ongoing relationships with investment bankers and will only work with that person once ‐ on that owner’s deal. Since it is such an important decision as a lot is riding on the transaction, how does a business owner select the right investment banker to represent his interests?  Here are a few questions a business owner should consider:

Type of Firm - “Bulge Bracket” vs. Middle Market vs. Business Broker

Does my business size and type fit their firm's experience level and client base?

Bulge Bracket generally refers to the large investment banks characterized by those headquartered near Wall Street offering the full range of investment banking, sales and trading of securities, research, lending, market making and large distribution networks often with a global footprint. Investment bankers are recruited from the top schools, receive formalized training, are put through a rigorous apprentice program and gain a lot of experience. Due to the minimum fees charged by Bulge Bracket firms, companies with less than $150‐$200 million of revenue do not capture their attention.

Business Brokers generally represent sellers of “main street” businesses. These could range from a small, local business, such as a restaurant, to a business with $1‐$3 million of revenue.

Middle-market investment banks fill the gap between, usually working with businesses of $5 - $200 million. Generally, companies with $5 million or more of revenue are too large and the deals are too complicated for a business broker to handle.  Some middle‐ market investment bankers began their careers at the Bulge Bracket firms, ultimately electing to focus their high level of experience on middle market companies.

Industry Specialization vs. Generalist

Do they focus on the industry in which my company competes or are they generalists with a smattering of experience across a broad range of industries?

Ultimately, can the banker understand your company, its competitive advantages within the context of its industry and communicate a compelling story to investors or buyers? Bulge Bracket investment banks tend to have industry specialist groups. Business brokers are typically generalists. A middle‐ market investment bank could be either a generalist or a boutique having a specific industry focus or some hybrid of both.

Experience & Track Record

Have they been successful completing similar transactions as mine?

Demonstrating a track‐record of successfully closed transactions similar to the one being contemplated is where the rubber meets the road.

Approach Toward the Transaction Process

What is their approach to executing transactions?

Certain firms customize each transaction process to the client’s situation.  Others use a one‐size‐fits‐all, taking the same "cookie-cutter" approach for every deal.

Industry Network and Relationships

How broad and deep is the investment banker's network?

In order to be effective, the investment banker must have a large network of relationships with investor groups and buyers of deals. Since investing or buying companies is risky, personal relationships built on trust is a cornerstone of the deal business. Building relationships takes time and is usually the result of representing many transactions to these groups to understand their deal appetite as well as get to know the people personally. Just offering a database download or a list without the relationship component is ineffective.

Focus on My Deal

Will they devote their full attention to my deal?

You need to ensure that the investment banker has the capacity to handle your deal. If he is managing too many transactions requiring significant amounts of time, he can become distracted and hard to reach. Also, the deal should fit from both a size and type perspective with what the investment banker normally pursues. From a size perspective, is the deal on the smaller or larger end of the spectrum for this investment banker? Larger deals tend to receive more attention.

Personal Connection

Will I like working with this person?

A transaction process is intense, interspersed with anxious moments, and requires a lot of time and back‐and‐forth communication. Having a good relationship is important as you will be working side‐ by‐side with your investment banker.


Do I believe this banker will provide honest, candid advice and do what is right?

Other than what you perceive in personal conversations with the banker, one of the easiest ways to research this is to contact references. Past clients and other professional advisors who have worked with this investment banker, such as attorneys and accountants, can provide important feedback.


How are fees structured and are they reasonable?

Generally, a credible investment banker will charge a non‐refundable retainer upon engagement. This retainer may be a lump sum, paid over time or paid based on achievement of certain milestones associated with the transaction process. This retainer should represent a minor portion of the overall fee.

The majority of the investment banker’s fee is tied to successful completion of a transaction. The success fee is structured as a percentage of the deal size. Although many business brokers refer to the Lehman formula, few investment bankers use this structure. Instead, they may quote a straight fee percentage (based the amount and type of capital raised or the overall size of a M&A transaction) or a performance oriented fee percentage that increases or “ratchets up” based on hitting certain transaction value hurdles.

Choosing the right investment banker is important. You need to ensure that he or she can represent your interests well and can act as your advocate in a transaction. Make sure to do your homework.

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