Finance & Operations

Roundtable: What Should Companies Look for in an Investment Banker?

October 19, 2011

Last week, we asked our panel of experts to discuss some of the things young companies can do to start preparing for an M&A exit or IPO. In the second of this two-part series, investment bankers Philip Ianniello, Michael O’Hare, and Alex Hart offer some tips that businesses can use when trying to find the right banker or lawyer.

Next week: What is a banker’s perspective on choosing the right VC?

What should management teams look for in an investment banker (or lawyer) when determining who to work with?

Philip Ianniello, Managing Director, Needham & Company, LLC

Philip IannielloCompanies should look for a strong personality fit when selecting such an advisor, since they will presumably be spending a lot of time with that banker/lawyer during the process.

They should also be comfortable that the particular banker/lawyer A) knows your company’s industry well and is in regular dialogue with the universe of potential acquirers, B) knows how to execute the transaction you are hiring them for, and C) will be personally involved in the day-to-day execution of the assignment or has a very capable team to do so.

Michael O’Hare, Managing Director, Head of M&A, Pacific Crest Securities

Michael O'HareManagement should develop a relationship with an experienced investment banker that they trust will provide unbiased advice.  It’s important that management be able to rely on the investment banker to guide them through what will be very important decisions and intense processes.

Ideally, an investment banker should be an extension of the company’s corporate development group. He or she should tailor an exit strategy that will allow the company to maintain leverage and control during the entire process and ultimately maximize valuation.  Management should also engage a team that will be actively involved in all steps of the process, without delegating to inexperienced junior bankers.

In addition, management should avoid choosing an investment banker strictly through a one-to-two hour “bake-off.”  These short pitches force many investment bankers into pitching common relationships with buyers, generic process timelines, and broad valuation ranges with the bias toward running a process that may or may not result in a satisfactory result for investors.  In most cases, the management team will be working with the investment banker for three-to-nine months, and it’s difficult to get to know an investment banking team’s credentials, approach and motivations in one meeting.

Time should be taken to develop a relationship with a few bankers a couple years before having to engage them.  Those bankers that are willing to invest time and resources in getting to know the management team and assisting with partnerships and other corporate development efforts early in the relationship without an engagement letter are likely to provide the best advice when management is ready to consider an M&A exit.

(Editor’s note: For more from Michael, check out our breakdown of his paper on the 8 rules of sell-side technology mergers and acquisitions.)

Alex Hart, Managing Director, Morgan Keegan Technology Group

Alex HartFocus and trust are very important in choosing a banker and lawyer to work with.  When hiring an investment banker, you want to work with someone who really knows your industry and has “seen the movie” before, along with all of the possible endings. You want someone with whom you get along and feel you can really trust.

Also, find out how long an investment banker has worked in your industry and the likelihood that they’ll have credibility with the buyers with which you’ll be dealing.  The M&A process can be very different in different industries, and sometimes having an advisor who can demonstrate and communicate their industry knowledge can make all the difference in a transaction, particularly when he or she has the credibility and experience to back it up.

Next week: What is a banker’s perspective on choosing the right VC?

Content Marketing Director

<strong>Amanda Maksymiw</strong> worked at OpenView from 2008 until 2012, where she focused on developing marketing and PR strategies for both OpenView and its portfolio companies. Today she is the Content Marketing Director at <a href="https://www.fuze.com/">Fuze</a>.