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Dec 24

Do I Need a Boutique Investment Bank?

VG_admin December 24, 2013

Many buyers or sellers wonder if they need a boutique investment bank versus a large full service firm. If what you need is a successful M&A transaction, you’re typically better off with a firm that derives all or most of its revenue from M&A. That means you’ll receive the best and most attention.

Do I need a Boutique Investment Bank

Typically, boutique firms are more nimble and able to react faster than larger full service firms. Therefore, they’re much better at completing middle market transactions where the number of buyers or targets is quite large. Boutiques are adept at operating in this environment. Boutiques are also good at giving the entrepreneur or corporate client that hasn’t completed a number of transactions the necessary advice to “walk” them through a complex maze of finding the right buyer or seller, presenting the transaction, helping guide due diligence, structuring a transaction that will be mutually agreeable, and negotiating a Definitive Agreement. All of these steps involve lots of intricacies that need to be managed efficiently and effectively. To conclude, for most middle market transactions a boutique investment bank will probably provide the highest level of service and the best possible outcome for either a buy or sell side assignment.

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Dec 19

5 Questions to Ask Your Middle Market Investment Bank

VG_admin December 19, 2013

Middle market transactions are sometimes the most difficult to complete for several reasons. Many times, either the buyer or seller doesn’t have any experience in completing M&A transactions. This isn’t necessarily bad; however, they sometimes find the process confusing or frustrating. Therefore, it’s important to ask the following five questions before engaging a middle market investment bank to work on your transaction:

Who will work on the transaction?

Many middle market investment banks delegate important transactions to junior staff. Therefore, it’s important to make sure that the senior level bankers will take an active role in your transaction.

What is the “reach” of the middle market investment bank, both domestic and international?

Does the middle market investment bank have the ability to identify and contact buyers or sellers around the world? The world has gotten smaller and there are many opportunities in countries that were previously overlooked by the traditional investment bankers. That’s one of the reasons why many of the “old-line” firms are no longer in business.

questions middle market investment bank

What is the firm’s philosophy in terms of finding the right target or buyer?

Is the firm capable of thinking outside the box to identify unique buyers or sellers for your transaction? Too many firms have a myopic view of who the buyer or seller should be. The problem with that is that the client loses the potential to close a very lucrative transaction.

How long has the firm been in business and are they qualified?

It’s important to make sure that you’re dealing with a firm that has been in business for at least 10 to 20 years to make sure that they are capable of completing your transaction. There have been plenty of cases where the firm’s principals have jumped to a larger company and abandoned their clients. Also, is the firm registered, either directly or directly with FINRA (Financial Industry Regulatory Authority), the self-regulatory organization that oversees the industry? If the firm is registered, the principals will also be registered, which means that they have completed at least two qualifying exams, which are administered by FINRA.

Is the middle market investment bank capable of completing cross border transactions?

Given how the world has shrunk, cross border transaction capabilities are imperative. Opportunities are no longer confined to one’s home country and most of the time, the best deals are with companies on the other side of the world. Therefore, it’s important that your middle market investment bank have experience with international transactions. It’s easy to determine if they have this capability by checking out their tombstones.

In conclusion, it’s important to have a firm with well-experienced staff, credentials, experience, and longevity to make sure that your all-important transaction is completed successfully and in a reasonable time period.

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Dec 10

How Middle Market Investment Banking is Different

VG_admin December 10, 2013

Middle market investment banking provides some unique challenges for both buyer and seller.

Most importantly, the number of buyers or sellers available to do a transaction, relative to the very large deals that dominate the headlines, is huge. Many people underestimate how many possible targets or buyers there are to complete their transaction. It’s one of the reasons why an M&A advisor is even more important for a middle market transaction.

middle market investment banking different

Another major distinction of middle market investment banking is that most of the entrepreneurs have never purchased or sold a business before. For many of these individuals, pursuing a transaction may be difficult to understand. M&A can be a complex maze. For example, it’s important how and when certain information is released, when and what type of Non-Disclosure Agreement is used, and how to structure a transaction that is fair to both parties.

The value of a middle market investment banking transaction is always a hot topic among both buyer and seller. Many entrepreneurs have devoted themselves to building their business so they’re not familiar with terms like EBITDA or multiples. There are many stories about this misunderstanding, for example, one entrepreneur was telling everyone that the EBITDA multiple was dictated by the company’s zip code. Nothing could be further from the truth, but this poignant comment is a clue that M&A is a highly specialized field. Another entrepreneur noted that they wanted to sell their business for x million based on his retirement needs, the necessity of paying for their grandchildren’s college educations, etc. Those were all admirable goals, but had nothing to do with the value of the business.

Negotiating a transaction is an art, not a science. To be successful, both parties, on either side of a transaction, need to focus on win-win negotiating. That usually produces the best outcome for both parties. As most middle market business owners do not have significant M&A negotiating experience, there are frequently many transactions that fail. Most of them could have had a positive outcome, but the parties did not find a solution fast enough to keep the transaction moving forward.

To summarize, middle market investment banking is different than very large company investment banking. First of all, most of the time, it’s the individuals’ own money that is at stake. Large companies have millions of shareholders and a mistake on an M&A transaction won’t carry the consequences of a bad transaction for an individual. In most cases, the success of a middle market transaction could be insured by engaging professional investment bankers who know how to navigate the complex M&A maze, can guide the negotiations, and have the requisite experience to structure a mutually acceptable transaction.

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