Investment banker RED FLAGS (not all bankers are created equal)

Welcome back to another edition of The Wise Exit!

In today's edition, you'll learn:

Investment banker RED FLAGS (not all bankers are created equal). The only M&A closing checklist you'll ever need. Movie time: Lessons from The Last Dance (Phil Jackson, Bulls coach) Let's dive in ...

Investment banker RED FLAGS (not all bankers are created equal).

Recently, I shared a story about how I once had to fire an investment banker on a 9-figure deal.

The investment bank brought a fancy pitch and an outsized valuation, but when the process kicked off, they largely disappeared. The company was left managing a team of inexperienced VPs and analysts who didn't understand the industry or business.

The company had to do all the work. Writing the CIM, building financial models, and creating an initial list of buyers. Ultimately, they fired the investment bank and found industry-specific M&A experts to help close the deal.

It shows that taking the time to find the RIGHT investment banker will pay dividends.

Quite literally.

So, here are 3 red flags to watch out for when hiring an investment banker:

Red Flag #1: Lack of Industry-Specific Experience

When an investment bank lacks experience in your specific industry, they won't fully understand your business, its unique challenges, and the potential buyers.

This can lead to unrealistic valuations, ineffective marketing strategies, and a mismatch between your company and prospective acquirers.

Always look for bankers who have a proven track record in your sector and can demonstrate a deep understanding of your market.

ACTION: Ask for the last 3 transactions they did in your industry. If it’s a stretch, they may not be the right advisor for you.

Red Flag #2: Over-Promising and Under-Delivering

Some investment banks may make grand promises during the pitch, only to fall short on execution. If a bank offers a valuation that seems too good to be true, you must dig deeper.

ACTION: Ask for references, case studies, and detailed plans on how they intend to manage the deal. The more specific the question, the more valuable the answer.

Red Flag #3: Focusing on Flash Over Substance

While a flashy presentation and impressive client list might appear good, it's crucial to look beyond the surface. A bank's true value lies in its ability to execute a successful deal, not in its marketing materials.

Pay attention to the substance of their pitch, the depth of their industry knowledge, and the quality of their team. A smaller, specialized firm with a proven track record may be a better fit than a large, generalist bank with little experience in your sector.

ACTION: Ask for references of former clients, and do your own homework - try to sniff out the deals that didn’t go as planned. This effort will be worth way more than any fancy presentation you listen to.

To recap:

When choosing an M&A Advisor, prioritize industry expertise, a track record of success, and a team committed to understanding your business inside and out.

By avoiding these red flags and choosing the right partner, you'll get the exit you deserve.

Featured Blog 📰

If you're preparing for a business sale, an "M&A Closing Checklist" is crucial to ensure no hiccups.

This checklist serves as a roadmap, guiding you through each step, from pre-closing to the final stages. It involves thorough planning, document gathering, and ensuring all parties are on the same page.

In this featured blog post, we provide a thorough M&A closing checklist. We cover essential steps in the pre-closing phase, closing formalities, and post-closing considerations. From due diligence to integration plan execution, we've got you covered.

Read the blog post: The Only M&A Closing Checklist You Need (Pre-Closing, Post-Closing, and More)

M&A Tips from Brian Dukes 💡

Re-watching "The Last Dance" on Netflix gave me a new perspective on leadership and team dynamics. Phil Jackson, the Bulls' coach, demonstrated the special skills required to navigate the challenges of managing varied egos and leading a talented team.

Another key takeaway was the importance of giving credit where it's due. The Bulls' GM, Jerry Kraus, was the architect behind their six championships, yet he never received the recognition he deserved.

As leaders, we must acknowledge and appreciate the talents and efforts of our team members, even if they work behind the scenes.

For more M&A tips from someone who's been there, follow me on LinkedIn.

That’s all for now.

Tune in next Wednesday for another set of M&A lessons, and have a great rest of the week.

Best,

Brian Dukes, Managing Partner