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Investment banking 101: How to hire the right M&A expert


05/01/2006







The first bit of strategy needed to complete a strategic transaction occurs well before the buying and selling of a company. It most likely starts with the selection of an investment banker who specializes in mergers and acquisitions. Here are few pointers for evaluating whether an M&A banker is the right fit for your company.

Do you have a buyer at the table? The first conversation you have with a banker about your transaction will be filled with many questions. A very important line of questions will be related to interest from other companies. Expect an experienced banker to ask specifically about ongoing discussions with an interested party or potential buyer. Experienced bankers should take time to understand the details and nature of your relationship with a potential buyer, allowing future conversations between the banker and potential buyer to be properly positioned and maximizing the potential for a strong negotiation on your behalf.

Are you kidding, free advice? An experienced banker also should provide immediate advice to prevent you from making costly errors and may validate actions you have already taken. If a banker is not willing to provide such advice prior to a formal engagement, he or she is not only missing an opportunity to build trust, but also impacting the potential to maximize the value of your company. Following this conversation you should understand how to implement the banker’s advice to improve your negotiating position and the probability of sustaining or increasing the value of your company in a transaction.

If you are selling technology, look for a geek. Does the banker understand your technology or fundamental business? For example, if your company uses the Schrodinger equation to model complex electron flows through nanostructures, hire a banker who can articulate the essence of your platform to each potential buyer. A banker with a technology background will drive value through better identification of synergies and increased credibility with the interested parties.

Develop the company, and then sell it. Your banker should be an extension of your business development team. The greatest leverage for a company in a negotiation is its ability to continue to be self-sustaining, i.e., to be able to walk away from any transaction. Look for a banker who understands negotiating partnerships or mergers with large corporations and supports your “go-it-alone” strategy. If the banker is not willing to invest the time to help you increase your value through a partnership instead of an M&A transaction, he or she is probably just looking for a quick fee.

Why sign another non-disclosure agreement? Find a banker who understands the importance of M&A law and will provide a knowledge bridge during the time it takes find a savvy M&A attorney. Many companies begin transaction negotiations under pre-existing non-disclosure agreements (NDAs), assuming they are protected. Unfortunately private companies do not routinely include non-solicitation agreements and public companies do not routinely have stand-still provisions embodied in their off-the-shelf NDAs. Your M&A banker should ask about the status of your legal protections and should work with your selected legal counsel. Avoid bankers who avoid lawyers.

Companies are bought, not sold. Corporations are becoming sophisticated acquirers of companies and technologies, using in-house business development teams to seek out and acquire properties. Look for a banker who will use targeted solicitation to educate potential buyers, facilitate meetings between management and corporate product or business development teams, and leverage any interest to create a competitive environment for your company’s transaction.

Do not fall victim to the promise of an ultra-high valuation. Avoid hiring a banker who promises to sell your company at aggressive valuation multiples of forward revenues without providing comprehensive comparable transaction analyses to back up his or her claims.

Hiring the right M&A banking team to provide advice will ultimately increase the probability of generating significant value for your company in any transaction. If you look for the skills and characteristics discussed above and trust your instincts, you will find the right adviser to complement your team.

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Christopher Hieb is the senior vice president on the mergers and acquisitions team at WR Hambrect+Co. He can be reached at chieb@wrhambrect.com