Press Release
Capstone President and Managing Partner Authors Feature Article For Boston Business Journal
A NEW BREED OF INVESTMENT BANKERS IS IN THE BOARDROOM
Shareholders are Starting to Work with Firms
in a More Integrated Fashion
Insider View: John Ferrara, President and Managing Partner, Capstone
Boston, MA -- January 16-22, 2004 -- The deal market for privately-held companies popped the cork early on the New Year as evidenced by the heightened M&A and financing activities towards the end of 2003. With valuations recovering and sales pipelines growing, strategic buyers and investors are back in the market with vigor.
A broader, more competitive deal environment has returned for middle-market businesses, offering momentum and optimism for executives of privately-held businesses that have weathered the storms. Options are available again - with more bidders, improved deal pricing and, most importantly, tailored transactions.
Entrepreneurs are quickly emerging from survival mode and dusting off their mothballed growth and transaction plans. They are looking to the middle market investment banking community to better attack the market with living, breathing, evolving strategies to secure growth capital, acquire competitors and gain personal liquidity through a sale of the business.
Shareholders have raised the stakes, however. They are demanding “more” out of investment banking firms than fee-driven deal mercenaries. They are beginning to work with firms in a much more integrated fashion, looking for professionals willing to become part of a team to focus on adding strategic value and developing the business. In turn, investment bankers are becoming a trusted advisor.
This new strategy for working with investment bankers is being embraced by shareholders and Boards alike. When done right, having an invested relationship can be a very powerful strategic weapon. It puts a “ringer” on the shareholders’ side. When appropriately implemented, it can add another team member that is intimate with the company’s strategy and the shareholders goals. It also puts an expert in the market, every day, looking for opportunities and building real value; whether it is connecting with industry analysts, recruiting key executives, validating growth strategies, assessing market opportunities, gaining competitive intelligence, or just serving as a sanity check.
It sounds familiar because it is the same relationship enjoyed by Fortune 1000 businesses around the world. The larger investment banking firms have just not been able to bring this level of expertise down to the middle market business owner. The good news is that the recent economic hibernation has harbored an entirely new generation of regional and national investment banking firms that are very different from their predecessors.
These firms are delivering strategic expertise, not just deal savvy. They are helping to bring the investment banking function into the board rooms of privately-held businesses.
For businesses owners with an eye to the capital markets, it is important to start with very clear goals for a financing or exit strategy; whether a deal occurs in six months or two years. If you do not possess the market expertise, or an ability to look at your business from an unbiased perspective, you should probably consider getting some help.
It is critical that you and your team become intimate with how investors and acquirers will perceive your business, its growth prospects, the market opportunity, the competitive landscape, the economic model and valuation. Gaps and weaknesses should be identified and eliminated before tapping the markets.
And remember that timing and preparation are everything. You have to be on the surfboard paddling – mentally and operationally prepared to catch a wave when it hits rather than on the sidelines where the best opportunities can pass you by. Months (and sometimes years) of market intelligence and precise positioning typically lurk behind the biggest valuation premiums.
When selecting an investment banker, remember that you are hiring people, not firms. Deal and industry expertise are merely the ante; a proven track record of commitment and value is what matters most.
If you are in the process already, make sure they talk more about your company and industry than themselves. Ask if the senior professionals in the meetings are going to be the people actually working your transaction. Ensure that they buy-into your goals and timeframe. Walk through case studies and speak to former clients (not just the ones that closed quickly). Understand what makes them tick personally, how they deal with adversity and what they have done to add value to clients beyond a deal. Make them put their money where their mouths are.
Most importantly, get a sense for the team’s integrity, dedication and grit because, at the end of the day, that is what it will take. The business is your baby; set the bar high. These types of transactions are far too critical to the business (and perhaps personally) for shareholders to be left scratching their heads, wondering why more parties were not interested or feeling that there business deserved a higher valuation - both unnecessary regrets that can last a while.