How Do Investment Bankers Get Deals ?
Investment Bankers are the middlemen in the capital-raising process. This indicates that the deals that are finalized are typically not pitched by either party but rather by the intermediaries, or investment bankers. Investment banks have entire departments devoted to the process because deal sourcing is the first step that may be taken by an investment bank to generate revenue. The effectiveness of this division frequently has a direct bearing on the bank's financial effectiveness.
Origination is the activity of establishing connections and negotiating contracts through attendance at meetings, industry research, and pitching. In this post, we'll take a closer look at the numerous methods that are frequently applied while originating or sourcing Investment banking deals.
Investment Banking Deals Process Overview
The whole Investment Banking deals process consists of the following :
Preparation - Information Analyses and Consolidation
The execution team visits the site during preparation to grasp deal subtleties, strategic issues including potential valuation, and the transaction process after reviewing all the material. The Preparation stage also involves the following activities:
Examine the company's operations, financial results, and prospects.
Create and improve a financial forecast
Collect information for your financial and legal due diligence
Examine structural factors, such as tax and accounting concerns
Go over the tactical and strategic considerations
Examine Structural & Timing Factors
Create deal collateral, such as an information memo, a financial model, and a teaser
Establish a valuation using common valuation methods
Examine strategic alternatives in light of valuation and structural objectives.
Examine Potential Transaction Structures
Support the Creation Of A Proper Acquisition Contract
Use contacts and transaction collateral to:
Position Business To Attract Particular Buyers
Locate and evaluate prospective buyers
Develop a management presentation
Establish a data room and arrange site visits
Conduct the marketing process according to strict time constraints.
Reduce Business Disruption
Due Diligence and Bid Evaluation
Compare and Analyze Offers and Considerations
Examine the available choices of the Company
Buyers' due diligence d. Analysis of the proposed transaction's tax and structural effects
Discuss prices during bidding rounds. There are various methods for selling or purchasing a business, but they all need considerable negotiation and multiple rounds of it. A few before and a few after the due diligence.
Negotiate the SHA and SPA agreements,
Negotiate the terms of the sale and the R&W terms.
Documentation and Closure
A fundamental legal procedure that is also crucial for bankers because they organize everything. This is only one of the numerous hats that bankers wear. a marketer, a lawyer, an accountant, and occasionally even a neighborhood errand boy.
Steps taken before Investment Banking Deals Process
The main objective of selling your company is to get the most money possible for you as the founder. By applying their knowledge to the whole deal process, an investment banker may assist you in maximizing value. They accomplish this by assisting you in maintaining the Investment banking deals process in the following manner:
Competitive: By negotiating with a number of interested parties simultaneously, you can increase values and work out unfavorable terms.
Positioned: When exhibiting, you should make sure that your KPIs and company descriptions give potential customers the best favorable impression of your business.
Efficient: The quicker you can arrive at your ideal result, the better.
Organized: Establishing definite process milestones helps to guarantee the caliber of bidders.
Confidential: Your company is shielded from disclosing confidential information to the wrong person by confidentiality.
Summary of Investment Banking Deals Process
An Investment banking deals process generally lasts between 4-6 months, while it occasionally goes as swiftly as 3 months. The average deal-making process looks like this:
Pre-Marketing: 2-4 Weeks
Together with your investment banker, you must take the appropriate steps before launching your company, such as:
Organizing your finances
creating promotional materials
making your investor/buyer list
Marketing Time: 4 to 8 Weeks
You will present your company to potential customers using the marketing materials you created with your investment banker when it is time to go to market. The following are the activities you will partake in during this phase:
Make the first move to contact buyers.
Sign NDAs and transmit the CIP to potential customers.
Present management-related information
Send out letters explaining the next stages.
Obtain first-round offers
Diligence: 3 to 6 Weeks
Together, founders and bankers will reduce the purchase list to 3-5 potential buyers after receiving first-round bids. During the diligence stage, these purchasers will then have the chance to examine further firm information via a confidential data room. This phase proceeds as follows:
Open and gather a data room
Set up half-day meetings on-site.
Consider second-round offers
Documentation: 3 to 6 Weeks
The selling firm and its banker should be able to choose a buyer from among the finalists after the second round of bids in order to start the closing procedures. The following steps are included in the documentation stage:
Finalize the exclusive third-party diligence
Examine the envisioned purchase agreement.
Make a spreadsheet for the cash flow.
Sign the contract for the sale and start the wire transfers.
Deal sourcing can, in actuality, be fairly complicated. The process is challenging to manage because there are no quantifiable KPIs that can be used to monitor a firm's success and compare it to that of competitors. Investment banks, however, as we have seen above have their own informal technique to guarantee these teams' top performance.