Why Hire an Investment Banker for Acquisitions

When acquiring other companies, corporations usually have many resources at their disposal, for example they can utilize their corporate development team, finance department, in-house counsel, etc. Consequently, management may feel that hiring an investment banker is an unnecessary expense. This is particularly true if management is not able to see the true value that a banker brings to the acquisition process.

The following are some of the value added features that an investment banker would bring to the process of completing a successful acquisition or answer the simple question: why hire an investment banker for acquisitions.

Appearance of Neutrality

When attempting to purchase another company, especially a competitor in the same industry, corporations face the challenge of appearing as genuinely interested. Many times, when an acquirer contacts a target in the same industry, they are seen as a competitor attempting to obtain sensitive information. An investment banker plays an important role in breaking down this barrier. Even though the banker is working for the acquirer, there is an appearance of neutrality. Consequently, target companies feel more comfortable dealing with an investment banker, particularly because they know he or she knows how to handle confidential information.

Target companies also feel that an acquirer that has hired an investment banker is truly serious as the buyer has made a commitment of time and money with regard to the investment banker’s participation in the transaction. Conversely, buyers without representation appear as less serious or only interested in obtaining confidential information.

Better Relationships Post Closing

The buy-side investment banker plays a critical role when representing the buyer. He or she can negotiate aggressively on the buyer’s behalf. After the transaction is closed, the buyer and seller can work together as they were not the ones fighting over value and terms. If these two parties had negotiated fiercely with one another during the merger, relations post-closing will be strained.

Thus, by utilizing an investment banker, the acquirer’s relationship with the target will be better post-closing. This is another critical role that an investment banker plays as the future success of an acquisition is dependent on the smooth integration of management teams post-closing, particularly if there are any contingent payments.

Objectivity

During the M&A process, it is invaluable to have a resource that can provide an objective opinion on the best acquisition strategy, valuation, and other matters. Corporations, even those with large staffs, may not be able to examine the full ramifications of an acquisition target post-closing. An experienced investment banker can help the buyer gain the perspective that is needed to complete a successful acquisition. This assessment covers the gambit of strategic, tactical, valuation, terms, negotiating tactics, structure, etc. Only an independent investment banker will be able to provide an objective third party view to a buyer.

Conclusion

There are many reasons why an investment banker can add real value to the acquisition process. They add an aura of neutrality, better relationships for buyer and seller post-closing, objectivity, and expertise with all of the moving parts that make up an acquisition transaction. This should answer the important question of why hire an investment banker for acquisitions.