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There is no panacea or instruction manual that a seller or buyer can use to select the "right" investment bank (IB). At the same time, there are some guidelines and probing questions the prospective client can and should ask, as follows:

  1. What is the degree of familiarity with the industry and specific buyer or seller? Almost never will an IB know the client's industry or space as well as the client, unless an IB person has managed at a high level in that specific industry. If one has that specific expertise, and the prospect feels a connection to them, the problem is solved. Read no further.

Familiarity is an amorphous term. Does the IB specialize in the space and know the most viable buyers and sellers? Can a specialized or focused IB be too close to the industry players, such that they will "shortcut" the marketing process to close the easiest deal with an ally? How can the prospect determine with any certainty that the deal terms proposed by the IB to them are the best or near best to be found? Again, there is no way to know for certain. However, in the absence of real clarity, industry familiarity is a plus. It is just not the most overriding factor.

Mentor Securities is familiar with most industries and niches within these. Our sister company, The Mentor Group, values hundreds of businesses each year; and these senior professionals are part of our IB team for both buyers and sellers.

  1. How much useful knowledge does the IB team possess? Too often, IB staff are familiar with deal terms and not substantive details (form over substance). Also, they may not fully understand the process, having experience as associates at large IB's handling only specific tasks on a large team.
  2. Is the IB equipped/staffed only for larger deals? All of the larger, national IBs are organized to staff their professionals for any large assignment. On the other hand, few of these firms will bother with middle market deals under $150 million. That is until the market for sellers constricts and the big boys pounce down market. If they don't really have an appetite for these "lesser" deals, how will they treat you as a client when you hire them?
  3. What is their process to close a deal and what is their success rate? For any IB engagement, the key is the process. Not only is efficiency of activity necessary, but so is the understanding and appreciation of the various stages. At times, urgency of data exchange and negotiating an LOI can be paramount to successfully managing a distressed deal. In addition, the prospect expectations must be continually explored, monitored, and satisfied, no matter what the circumstances. Disgruntled or ill-informed clients do not present well, nor are they willing to accept the inevitable concessions and compromises so crucial to maintaining momentum in the process.

The IB should be queried as to their flexibility, entrepreneurial experience, and capability to introduce the appropriate resources to secure a solid outcome.

  1. How do you attempt to measure trust in and respect for the IB? Talk to their trusted confidants, for one. Interview other professionals with whom they have worked successfully. Ask them for examples of how they helped their clients survive the deal pitfalls; how their trust in the client was undeterred in the face of adversity; when they discovered and how they dealt with unknown problems and buyer attempts to re-trade the deal price and terms (lower the initial offer). In essence, a buy or sell transaction is like dating or being married for six to twelve months, at least. Not every day is idyllic, but forthright communications is essential.
  2. Are the IBs problem solvers or creators, knowing how to direct the team of professional experts for a successful finish? Again, these subjective assessments are difficult, yet significant. If the IB has worked previously with the referral source, bring the source to at least the initial meeting for confirmation.

Mentor Securities is the best blend of leaders, managers, and technicians. We know the pitfalls of the deal process, as well possess the expertise to understand and enumerate the quantitative solutions for at least the following:

  1. Cash flow consistency and growth
  2. Customer attraction and retention
  3. IP – how it drives value
  4. Working capital versus excess cash
  5. Realistic cost reductions – synergies
  6. Development of the appropriate multiple
  7. Supportable adjustments to EBITDA
  8. The value impact of new product/service offerings