A Guide to Choosing the Best Investment Bank

Many companies come at a time when they require expert help and advice to sell or raise capital. 

Investment bankers are essentially financial advisers that can help with various company needs, which all typically revolve around raising capital. They can help you float your business on the stock market, for example. Or they can negotiate mergers and acquisitions.

Whatever you’re reasoning is to use an investment banker’s services, you should research whether they will suit your needs. The best investment bank for other companies might not be the best for your requirements.

So now, let’s look into how to research and questions you can ask to find the right investment bank for you.

What Is the Investment Bank’s Experience?

There’s no right or wrong way to go about this. You will come across banks that have extensive experience in the same industry as your company. However, other banks may have a lot more diversity of experience, meaning they have ways to leverage better.

Some banks may not have direct experience in your industry but are a good fit because they’ve worked in a very similar complementary sector. 

There is a strong argument that an investment bank needs a bit of both – relevant knowledge in your given industry as well as a broader range of industries. This way, they can see potential opportunities in ways you, or other more specialized banks, won’t.

Moreover, you should vet an investment bank extensively before trusting them with the keys to your company. Proof of successful strategic transactions and overall track record are solid indicators for you to go by.

The Investment Bank’s Size

Ideally, you should want to gain the expertise and attention of senior-level employees within an investment bank. If you’re a small to medium-size firm, then larger investment banks typically won’t dedicate their top employees so much for your disposal.

Small investment banks may give you top-level access to senior players in their establishment, but then they won’t have the resources of larger banks. It’s a bit of a catch 22 situation.

An excellent way to approach this is to figure out whether you need a lot of resources or require banking expertise. And there’s always a chance that you can find a happy medium where you get the best of both worlds with a bit of compromise.

Ultimately, you should be looking for the best investment bankers you can get, as it is one of the most vital decisions you’ll make. 

Are They a Good Fit Transaction-Wise?

If you’re selling your firm, one crucial factor to look out for in any investment bank is how they conduct their transactions. It could be that the way they do business doesn’t fit well with your unique needs.

More specifically, will the investment bank understand how to create the best-perceived value of your company when they place it on the market. Some banking firms can be so attached to making transactions that they can be blind to other ways that could enhance the process.

Therefore, if you feel that you have unique needs, you need to make sure the investment bankers understand them well. They should also have the willingness to be flexible if needs be.

But as a warning, if a bank is too flexible, it could be pretty risky as they are trying new things too often that aren’t tried and tested to be successful.

So again, a happy medium should be sought out with a bank which has their proven ways but is willing to be flexible while referring to safe levels of past president. 

You’re Comfortable With How They Get Paid

In years gone by, investment bankers generally had the same type of payment structure. Those days are gone now where they would charge a retainer monthly and then a commission once they successfully sold your company.

The commission for success was the big payout for bankers, which made them work tirelessly and sometimes with unethical practices to sell your company. It would be a percentage of the deal value, and so they’d always try to get a more considerable deal amount. The entire approach is known as the Lehman Formula or Scale because Lehman Brothers Bank developed it.

There are various payout structures in place, although many of them take inspiration from the Lehman formula we’ve mentioned. Yet, with so many pay structures, it’s essential to decide to go with an investment bank that you know and agree to their particular formula. 

The best way to go about this is to meet with numerous bankers and clearly explain their payment model. If you don’t like what you hear, it’s best to avoid them – even if their other attributes look favorable. The reason is, once you’re tied into a contract, things could get challenging, and you could end up losing way more money than you ever thought possible.

Do They Entertain a Global Perspective? 

Opportunities don’t just lie in one nation or region’s specific marketplace. There may be bountiful opportunities out there to sell, merge, or conduct acquisitions abroad in foreign markets. 

If looking outwardly is something that you believe has potential for your firm, ensure you go with an investment bank that conducts this business.

There has been a huge rise in mergers and acquisitions cross-borders in recent years to create multi-national firms. As well, there’s a lot of appeal for international investors to pay more than domestic players as they like the advantage of having ties in the desirable US marketplace.

A shrewd investment banker will understand how to utilize foreign desires to enter the US market and work something in your favor. For them to do this, they need excellent global knowledge of markets relevant to your company.

You Have Internal Support

It’s no good deciding on an investment banker alone, without second opinions from advisers in your firm. Whether you’re selling or raising capital, it’s better to make it a team exercise.

Some key players that you should have by your side are a deal attorney and an exit planner. 

A deal attorney is there for you to ensure that all the paperwork and proposals make legal sense. Get a deal attorney that is well-versed in mergers, acquisitions, and the selling of a firm. As well, they should know the ins and outs of floating a company on the stock market.

Also, it’s good practice to find a reliable deal attorney first before you go into the lion’s den and approach an investment banker. They’ll be able to prep you well and point you in the right direction of what to look out for when dealing with a bank.

They will also know how to minimize your risks, hold down fees, and ultimately look out for your best interests. Plus, they will spot provisions that don’t look like common practice in the industry.

Your exit planner is like a specialized researcher of investment bankers. They can carry out a lot of the prep work, which for the most part, is vetting different firms. While the deal attorney checks to see if everything is kosher, the exit planner is like a headhunter working for you to find the best investment banker for your needs.

Professionalism and Trust Is Paramount

You have to trust your investment banker, get along with them, and get a strong sense of professionalism from them. You’ll likely be working very closely with them for months on end, and this will be a testing period. 

Transparency is also important. The last thing you want is to do a deal with an investment banker who makes certain promises, and then when you’ve signed the papers, they shun you off to lower-level employees. What they say and promise to you needs to be kept. 

But how do you trust a prospective banker? Well, track records, and a close look into the contracts are a must. Also, if you feel like you need to make adjustments to make sure you’re getting the services required, discuss them extensively with your deal attorney and exit planner before making any commitments. 

It’s recommended to take a numbers game approach when choosing an investment banker. Run through multiple candidates. Then you’ll start to become more accustomed to what’s actually available for you in terms of services and fees.

Plus, an array of solid and verifiable references can always help you in your decision process. One great example of a truly professional investment banking service is this company.

Choose Your Investment Bank With Care

Choosing the right investment bank for your needs isn’t going to be a walk in the park. It should take time and commitment towards your desired end goal. 

Getting reputable advisers on your side before you venture out on your mission is also a must. Get your house in order and put real effort into the preparation before even contacting any investment bankers.

Thanks for stopping. We hope this information can help you and your company in future endeavors. Please check out our blog for more insightful articles.