Key Questions to Ask Your Investment Banker
Hiring the most prestigious investment banker doesn’t necessarily translate into greater value or better service for your company. Value and service will generally depend on whether there is a good match between the strengths of the investment bank you use and the needs of your company.
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Hiring the most prestigious investment banker doesn’t necessarily translate into greater value or better service for your company. Value and service will generally depend on whether there is a good match between the strengths of the investment bank you use and the needs of your company. This underscores the need to interview and do your due diligence before you select an investment banker. Selecting the right investment banker for your company will include the following factors.
- Is the bank interested in companies of your size or transaction?
This is the foremost question you should bear in mind before you select your investment banker. It could be possible that your company size is targeting domestic as well as international investors, but the investment banker has neither knowledge nor experience in foreign investment.
- Does the bank have an investment analyst who is recognized as being strong in your industry and will that analyst issue reports about your company?
Make sure the investment banker also has experienced analysts who have specialized experience relating to the industry in which your company belongs. This is also very important because the analyst should not be spending time and effort in learning the specifics of your business.
- Does the investment bank’s customer base match the types of investors you are seeking (e.g., retail vs. institutional investors or U.S. vs. international)?
Again, it is important that the bank’s customer base matches your customer base. Otherwise, the match would be incompatible and you would be attempting to target investors who have no interest in the line of business in which you are involved.
- Does the investment bank have a good record of supporting the market price after the transaction is over?
The investment banker should have a good brand image and reputation of supporting the market price. If this is not the case, the market price of your business would fall, and that would not be a healthy sign for the growth of your business.
- Is the investment bank strong in other financial services your company needs?
Evaluate whether the investment banker is providing you with any other ancillary services. Other financial services could include helping you with your proposed IPO or helping you manage your debt-equity ratios.
- Who will sell your deal?
The investment bankers you meet at the “pitch” are not necessarily the ones who will do the work. These senior bankers are very experienced and have impressive resumes. However, in many cases, you will spend your time dealing with bankers who are a year or two out of business school. Ask to meet and interview the team. Also, ask the senior people to described exactly what roles they will play. Get the home and cell phone numbers of the senior people and use them as needed throughout the deal.
- What is your industry experience?
Ask what other companies the bankers have represented in your industry. Have them create a list with the type of deal for each industry client. Success in selling is increasingly dependent on knowledge about special industry markets and which investors are interested in each market. Don’t make a decision based on a generic deals list that’s not industry specific.
- Are there any conflicts of interest?
Ask the bankers whether they represent any of your competitors. Ask them to check their database. You may not want to educate them with your confidential information, if they’re advising a competitor. Ask what happens to you if a larger competitor is doing a bigger deal and wants the banker to drop you. Get confirmation they will continue working for you.
- Are you registered?
Investment bankers are subject to extensive government regulation. Most states require them to register with the state securities regulators. Many small placement agents and finders fail to register. Ask whether the banker is registered in all the states in which securities are to be sold. Check with the securities regulators about whether there have been any securities violations by the placement agent or finder.
- Tell me about your clients
Ask for references to clients of the investment banker. Ask for references to both clients whose deals closed and clients whose deals did not close.
Source: Jim Verdonik is a principal in Daniels Daniels & Verdonik, P.A. (www.d2vlaw.com). He can be contacted at Daniels Daniels & Verdonik, P.A., Post Office Drawer 12218, Research Triangle Park, NC 27709-2218; 919-544-5444; email: firstname.lastname@example.org.