United States: Is It Time To Hire An Investment Bank? Part II

Last Updated: September 18 2015
Article by David A. Jaffe

In Part I of this series, I discussed the "ins and outs" of the decision process sellers undertake when they consider hiring an investment banking firm to effectuate a sale of the company. Part I identified three common scenarios where bankers can offer high value on the sell-side. In this post, we'll take a deeper look at the banker interview process and explore some key questions (and the rationales behind them) that every seller should ask when considering engagement of an investment banking firm.

Not your father's LMM

The influx of talented deal professionals into the lower middle market ("LMM") over the last decade has radically changed this market segment. In the early going, most M&A advisory firms were generalists whose main expertise was in working on smaller transactions with privately held or small cap client companies. As the LMM has matured, it has segmented. The LMM has now evolved to the point where a banker must not only have "chops" in common LMM attributes (smaller transactions, knowledge of mezz players, closely-held companies, revenue volatility, customer concentration, thin capital, etc.), it must also have industry expertise. Moreover, as new industries rapidly emerge, evolve and undergo segmentation and sub-segmentation, clients increasingly are expecting financial advisors to have depth in sub-specialties, sectors and niches within industries. Nowadays, it is not uncommon to find many smaller, highly competent "boutique" M&A shops with these very deep and narrow sub-specialties.

With the plethora of choices available, it is possible now more than ever for sellers to find highly competent advisors to represent them in a sale process. However, in order to do so, sellers must be more diligent than ever before in their search. That process starts with knowing what questions to ask. If you are considering a sale of the company, here are some important questions you should ask bankers seeking to represent your business during the interview process:

Question 1. What percentage (by deal volume and dollar value) of your firm's work is in M&A? Corporate finance? Other?

Many middle market investment banking firms offer an array of different services – including merger and acquisition advice, corporate finance (e.g., capital raising), fairness opinions, valuation services, restructuring and/or turnaround advisory services. By asking this question, you will gain some general understanding of the relative importance of M&A to the firm's overall practice and the banker's expertise in M&A relative to other areas. Naturally, as a seller, you will want to select an advisor whose focus is M&A.

Question 2. How many M&A engagements have you led in the past 2 years?

Recent experience is generally more relevant than dated experience and many industries tend to move in 18-24 month cycles of activity. Moreover, transactions usually take at least 90-120 days from inception to closing. So a two year "look back" should provide a good barometer of the firm's familiarity with emerging deal trends. This question will also provide you with a sense of the banker's deal pipeline which you will want to know in order to determine the level of attention your transaction will receive and the capacity of the firm's top professionals. It's one thing for a banking firm to be highly sought after. However, if there are too many deals in the shop in the same stage of the process, you risk getting lost in the shuffle or getting the "B" players assigned to your deal.

Question 3. Of your firm's M&A engagements, what percentage is sell-side?

Most investment banking firms that do M&A will tell you that the vast majority of their engagements are sell-side mandates. However, there are firms out there who work with a select group of buyers in a narrow range of industries. As a seller, you should ask this question of the banker if only to filter out of your process any firm that does not have recent, relevant sell-side experience. Moreover, responses to this question (in combination with responses to the next question), should enable you to determine whether the banker has institutional relationships on the buy-side to which it is beholden and that could adversely impact the sale process for your company. One common example of this is when the banker receives a large share of its engagements from an institutional investor such as a private equity firm. In such cases, there can be a natural, if subconscious, tendency to show preferential treatment to that client in engagements that the banker has undertaken for other clients.

Question 4. What percentage of sell-side engagements is for Private Equity clients and what percentage is for Independent/Owner-Operated clients?

This is a very important question for a non-P/E-owned seller to ask. As I explained in the rationale for Question 3, many advisory firms have substantial, long-term relationships with private equity firms who will use the same investment banking firm (or group of firms) to sell their portfolio companies and also to identify acquisition targets for the firm and its portfolio of companies. This can present several issues for an independent owner/operator including, among others, how the transaction will be prioritized by the banker who has a significant institutional client sending it lots of deal flow? What resources and personnel will it allocate to the transaction? How much attention will senior bankers give to the deal? If questioned, the banker may tout its relationships with P/E firms as a benefit inuring to you, the seller. While this may be true if you will be considering bids from P/E firms, it may present more obstacles than benefits. Most importantly, as many LMM deal pros can attest, representing independently owned businesses that are run by families requires a unique mix of skills and experiences that is distinct from the skills required to represent institutional owners like P/E firms or large cap public companies.

Question 5. What has been the average transaction size (deal value) of your sell-side M&A engagements over the last two years? Minimum size? Maximum size?

Over the past few years the LMM has witnessed the entrance of banking firms that previously would not have considered doing transactions at values less than mid-nine figures (and yes, I mean to the left of the decimal point). As a seller, you want to understand the importance (as measured by indicative transaction value) of your deal relative to the banker's backlog of transactions. If it is too small, the banker might deprioritize your deal in favor of transactions that are larger and more lucrative to it. If it is too large relative to the firm's average transaction, the firm may lack the expertise and resources to get you to a successful closing. Ideally, the sale of your company should be of sufficient size and value that the banker is eager to obtain the engagement but not so large (or small) that it takes the banker out of its zone of competency.

Question 6. Of recent sell-side transactions (initiated in the last 2 years), what percentage have closed to date?

One of the biggest concerns a LMM seller must address is closing risk. The M&A process will take up an exhorbitant amount of management's time and attention for several months. The opportunity cost of a failed transaction in terms of attention and resources diverted from the operation of the business is considerable, to say nothing of the reputational damage. Sometimes deals break because the market turns in the middle of the process. Other times, deals break because they are mismanaged by the banker. Understandably, investment bankers prefer not to admit defeat. They are more apt to live by the adage "Old deals never die, they just close later"...and later...and ... you get the point. In the absence of external factors affecting the industry generally, if the banker is sitting on pipeline of deals that it hasn't closed within a two year time frame, it is a major red flag that you need to know about. This question is a way to elicit information on "close rate" that might not otherwise be apparent.

Question 7. What percentage of your closed transactions have closed at or above the initial valuation range?

When investment bankers come to pitch sellers, it is common for them to provide what is known as a pitchbook. Among other information, it contains a preliminary (or indicative) value based upon financial data provided by the selling company (usually under confidentiality agreement) and transaction data from the sale of other "comparable" companies. Bankers recognize that the pitchbook valuation has great significance because it establishes a baseline expectation in the seller's mind of what the company is worth. For this reason, most reputable banking firms will not submit a valuation unless they are highly confident that the final transaction price will meet or exceed that value. Conversely, investment bankers recognize that if the indicative value is too low relative to seller's expectations, they will be unlikely to win the engagement. So, reputational risk constrains them on the upside and competition constrains them on the downside. Either way, it is extremely important for a seller to be able to gauge the ability of the banker to deliver against the pitchbook valuation in the form of actual purchase price in closed transactions.

For company owners, no single event is as important as the sale of the enterprise. The transaction professionals and advisors you choose will have a very significant impact on the outcome of the transaction; none more so than the investment banker. By using these questions, you will be able to get better insight as to the best fit for your company.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

David A. Jaffe
In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions