CEOs and CFOs of middle market companies regularly make important decisions to engage a variety of Professional Service Organizations (PSO) to perform necessary corporate, transactional and financial planning tasks.  Yet, the engagement decision to hire a particular investment bank, wealth management advisor or consulting firm, is often made without examining whether the new PSO has an existing working relationship with the referring PSO already providing services to the company.   

Asking for a referral from an existing professional service provider is the common way that most CEOs and CFOs begin their search for another service provider with a distinct specialization.   However, if the referral discussion focuses on a particular PSO firm’s isolated attributes, this does not necessarily correlate with the prospective PSO firm being a “good fit” within the context of all the PSOs serving the company. 

The effectiveness of the PSO vetting process (the so-called “beauty contest”) can be improved by inquiring whether the referring firm (e.g., an accounting firm) regularly conducts business with the referred firm (e.g., an investment bank).  If a formal Strategic Alliance is found to exist between the PSO firms, then established methods and processes help ensure that the PSOs provide complimentary resources, expertise and advice, in order to deliver collaborative solutions to the client company.   Read the rest of this entry »

Popularity: 41% [?]

Every good investment banker knows the value of having a client represented by an experienced transaction attorney. The absence of one can cost your client a deal or worse yet, cement a bad one. What about an investment banker though? First time sellers will often ask what value a good investment banker adds to a transaction. “Why can’t I go it alone”, they may ask.

I have a long list of answers, but I thought I would reach out to several respected transaction attorneys for their comments. In their practices they work for clients who are represented by investment bankers and clients who are not. From their third party perspective they are well positioned to offer valuable insight.

Cliff Pearl, a transaction attorney with the Denver firm of Hensley Kim & Holzer, LLC, believes that, “The biggest value a good investment bank adds is properly orchestrating the process…. Many sellers believe that the only thing they need is someone to find the buyer willing to pay the highest price, and if they find that buyer themselves they think they don’t need the help of an investment banker. They are wrong. Transactions fail in many instances because there is nobody properly orchestrating the transaction process and acting as the shepherd of the transaction…something the participants and lawyers typically can’t do….” Read the rest of this entry »

Popularity: 43% [?]

Business owners interested in selling their business can readily see the benefits of hiring an investment banker to identify qualified buyers. However, the issue which routinely arises in negotiations between the business owner and the investment banker is whether or not the owner will pay an initial retainer and/or monthly work fee.

Owners often maintain that they only want to pay for the result of an actual sale, and, therefore, are willing to pay success fees upon closing, but they are not willing to pay any up-front fees. However, this view assumes that the risks of not closing a transaction depend solely on the investment banker’s performance, whereas, in fact, closings also depend upon the owner’s determination that he is receiving the highest price, the best terms or the business is being sold to the “right buyer.” Read the rest of this entry »

Popularity: 73% [?]