From a Corp Dev guy what value do bankers actually add?
I’ve only run three transactions but they all go the same. We get a laundry list of deliverables to provide for the CIM which they just paste into the PPT template. We have to teach them line by line how to model our company and usually just end up doing the modeling for them. Is it just investor outreach? Are we paying 10M for the bank to send a teaser to Blackstone!
You could have bankers that are not a fit for you, or you could be at one of those firms that frankly don't need bankers.
Sometimes we're just there for management / boards to cover their asses - hey look, we hired an outside advisor to help us make the decision. Case in point - fairness opinions.
Anecdotally, have only found bankers marginally useful on the sellside for auction processes (buyer outreach, helping to get a higher valuation, data room). On the buyside, absolutely useless. Their usefulness is also a function of how developed your corp dev team is though. Could easily see companies without a robust corp dev team need the banks to get much more involved.
We have several clients that just use us for outsourcing ppt assembly and random research pulls because they have great corp dev teams and have developed relationships with nearly all of the main investors in their sector. Big or bespoke transactions are different though. We have other clients (typically newer companies) who need help with even the basics of a transaction or they do one transaction per decade and have no idea how to do it. Bankers can provide cover like consultants and outside counsel - McKinsey said it was a good idea, Skadden said it was a good idea, etc., let's do it (and we can blame them if it goes to hell).
I get that smaller shops would need more help on the banking front. We’re an established F500 company, so I guess we don’t need as much hand holding. I’ve never worked in banking, but do find it funny how everyone says bankers work 100 hour weeks, when in my experience it’s the corp dev team working til 1/2 am to pass off to the bankers to get the credit. The consultant analogy is apt, as that’s another scenario where you just have to teach someone your company just to have them regurgitate it back.
100 hour work weeks are due to all of us being on several deals. Not a lot of firms have highly developed corp dev teams. F500's are always much more developed, but when a smaller firm wants to do something its much much more difficult.
Not to mention the fact that it takes a while for all information to go up and down the chain of command. Sometimes I'm just waiting at 7 PM for comments that come at 10, and we have to get everything done before the client meeting in the morning.
What you're saying is factually correct but misses the bigger picture.
One example of how it works in practice. Management will say here are the top 7 things that stand out about our company and that we want to highlight. The bank will come back and say, 1-3 are great, I know you're proud of 4,5,6 but 4 and 5 aren't that impressive relative to what your competitors are doing 6 is something investors really don't care about, 7 we like what you're getting at but here's how we can expand on it / refine it.
Also, here are three other points investors typically think about in the context of valuation, where you compare favorably, that we would suggest highlighting.
On the surface, the banker's guidance even in an ideal scenario will look like a handful of minor tweaks, but behind this is 1,000s of hours spent benchmarking, speaking with investors, refining similar stories across competitors and so on.
As someone that has done both, I agree with you that no banker is usually needed for larger companies with well built out corp dev teams. Sometimes they’re run by ex-bankers, so that creates even less of a need. However, once you go into the MM space, lots of companies don’t even have corp dev teams, or maybe it’s 1 person. In that case we do pretty much all of the work for the client, including running and coordinating diligence, analyzing all the data provided, etc. Also, Corp Dev hours are def not as much / intense as the bankers. Sure we work till 1/2 sometimes but bankers do all the time, especially because you are on 4-6 projects at the same time. At least for me, it’s more like 2-3 in corp dev and sometimes just 1-2.
Our bankers provide financing scenarios, talk to investors about potential debt/equity issuances and underwrite facilities. They would also provide inputs on the competitive landscape, deal perceptions and assemble some board materials. They usually get looped in at the beginning of the second round. We are a small team of 3, and the additional horsepower from bankers is always appreciated.
The value add is really in positioning the company, what points to highlight for which buyer, what to bring out to maximize valuation. Bankers also can give a point of view on what the market is willing to pay, how far can you push xx buyer, how much historically you've been able to push xx buyer from their initial offer to final price and help come up with alternate structuring alternatives to bridge gaps in valuation.
The reality is that it's not really a question of abilities or aptitude. Just as a function of being in the market every day, working on a ton of transactions and having strategic conversations with CEOs on a daily basis, bankers will have a lot more data points and a lot of info that a company would never share with a competitor. The institutional knowledge of a corporate development team will never match the banks.
Good post. While some big companies with bigger Corp Dev teams have no need for a buyside bank on small-medium sized deals, running a process on a sellside without a banker would be an absolute nightmare. I can't imagine not having a sellside advisor - writing CIM, buyer outreach, doing MP, handling diligence, pushing back on buyers, etc. I'm surprised by some of the comments above. Unless you work in an industry with only one or two logical buyers for a unit you're trying to divest, doing a broad outreach to all the PEs and strategics seems like a huge nightmare.
The banks finance your transaction and find the buyers. You, on the other hand, are a back office project manager. Good job on your reconciliation accuracy.
My one call two weeks before the binding bid to the Blackstone partner who I've known for 15 years where I hint to them that unless they gets their act together and posts something meaningful, they will be on the outside looking in with $3mm in dead deal costs
The insight I gave your boss's boss's boss three months before the deal launch about what pricing level I think the market is going to bear for the deal, how their share price will react and how to sell it to their Board
Or the final moment in the SPA negotiation when I tell your legal counsel that financing spreads are gapping out, to not over negotiate some warranty that has a 0.0001% chance of happening, and they better get this deal signed pronto
Any one of those things taken in isolation is worth a lot more than a $10mm fee. That's what clients (who aren't stupid) are paying for. The work on the CIM and the model and all that stuff is just thrown in for free. Most junior corporate development people are just internal coordinators and too far removed from real decision making to understand this.
I’ll push back a bit on this comment. 1st, if the CIM and the model are given away for free as you put it why are they even produced in the first place? Do PE firms even utilize any of this, or do they just defer straight to their own models / team of consultants/ bankers they hire?
To your call to BX being worth 10M what exactly are you doing here? Are you just asking them to raise their bid without saying as much? From my experience it goes: Teaser, after this if you have interest you get the CIM/ Model, after this if the buyside groups have questions the banks will reach out to Corp Dev who relays the info to the buyside, 1st round bids are submitted, then if you have some laggards the bankers call the PE firms saying raise your bid otherwise you’re not moving on. Am I missing something here?
In regards to pricing levels, I’m assuming you mean looking at precedent transactions/ the market environment/ firms who have new funds opening or capital to deploy. Then you say we think you can buy/ sell this business for X. Again in my limited experience bankers usually are not very close to X by the time the deal closes.
To the SPA comment I can’t imagine a Skadden/ Paul Weiss lawyer missing that, but maybe you have a less than scrupulous attorney. I guess I’d just like a little more context around the bidder outreach since the consensus of this thread seems to be bankers don’t provide much value outside of that.
I say this with all due respect, but judging by your messages, you’re probably too junior and Insufficiently commercially clued in to understand. Get some more deal experience under your belt, talk to your CFO or CEO and get their perspectives. Much of what gets deals done is not the nitty gritty of process. Necessary but it’s like 10% of the value add.
I think what they're trying to say is that there are a lot more high level things involved in an acquisition / sale than just running the process. As juniors, it's fairly easy for us to get stuck in purely looking at the deal process since that's all we see in a transaction - so to us all there is to a deal is just making the marketing materials, the models, running the DD process etc.
But in actuality, most of the crucial aspects in running a transaction is the strategic and relational aspects behind it. Thinking about why a transaction should be done, when it should be done, and how it should be done - these are things that many internal corp dev teams might not be familiar with since they're not really as in touch with the market as the bankers. Another value-add is in the banker's relationships, where they're simply going to know a lot more potential buyers and tend to be more familiar with who would be interested in buying the asset from their years of working relationships with them, whether they are sponsors or strategics. Both of these areas add a lot of value to clients, as it's 1) things that they are unfamiliar with and 2) would make / save them a lot more money than the couple million in fees that they're paying.
As you might have realised yourself, the sell-side model and CIM really isn't that important in a transaction, as potential buyers will be making their own internal materials to evaluate the deal. But as that's all we usually have visibility over, we tend to inflate the importance of these things.
that's cool man. As an MD what value do u see in lingering in WSO watching college kids (and some immature adults) fight?
Should be more grateful to the fact that there even are seniors on here who are able to share this amount of insight and information about the business. God knows we could use more people like him on this forum rather than yet another Prospect in IB or Intern in ER.
Well I was on the site years ago, then with all the comp changes that happened, I went back on to make sure I saw where others were (we pay a lot of money to a consultant for comp data but I like primary sources) to ensure my firm was competitive. And it’s not the worst place to browse in my downtime (right now, I have a long Uber ride somewhere) when I don’t want to tax my brain too hard. My interaction with my own analysts / associates is stilted these days given the seniority and power gap - they will never tell me what they really think and I understand that - so it’s interesting and makes me a better manager to know what’s happening on the ground.
I am in the same position as you, and agree 100%. Well said.
This is one of my guilty pleasures. Watching my MDs put an overzealous pedantic counsel in their place is a thing of beauty.
Exactly! Corp dev team (outside of head/senior executive) is only aware of a fraction of work being done by bankers (and quite frankly less important work they know about) Corp dev team is rarely involved in transformational deals, which is where big F500 clients really need bankers.
Bankers also manage the outreach process which is extremely time consuming. I work in the MM space (and as you move upstream, these processes become more targeted I assume so maybe not as big of a deal) but managing buyers for a decently broad outreach is extremely time consuming. The bankers are fielding multiple calls from buyers a day, negotiating NDAs, trying to get answers to buyer questions, following up multiple times with buyers who aren't responsive etc.
It's quite a time suck.
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