“Do investment bankers add value during an exit process?” Or, in other words, “Are bankers worth their fee?” I am confident that countless first-time sellers have wrestled with this question as they began evaluating an exit. Historically, the answers to these questions were anecdotal. However, a recent whitepaper by Michael McDonald, an Assistance Professor at Fairfield University’s Dolan School of Business attempted (and succeeded) to be the first to take a more scientific approach to determining if and how an investment banker provides value to a client.
The Fairfield University study represents the first comprehensive independent analysis to determine whether or not sellers valued their advisor, and more importantly, what specific actions and counsel the sellers valued the most. To accomplish this goal, the study used empirical data from 85 business owners who sold their businesses for between $10 and $250 million during the period from 2011 to 2016. All of the sellers used reputable investment banking firms as advisors and the 85 owners accounted for 24 different investment banks. (EdgePoint was one of the investment banking firms that was represented in the study.)
The study’s survey asked the owners a series of questions in an attempt to identify “value”. One set of questions focused on which services the owners valued the most and asked them to rank eight different services (eg, preparing company for sale, identifying and finding the buyer, negotiating the transaction, etc.) The resulting outcome was not a surprise to us at EdgePoint, but I imagine it may be enlightening to owners who have yet to go through the process. The highest ranked service valued by the sellers was, “managing the M&A process and strategy”, closely followed by “structuring the transaction”. Finding the buyer was the lowest ranked service.
The key takeaway is that the M&A process is significantly more complicated and confusing than most first-time sellers realize and an investment banker provides as much value as a guide as he or she does as a broker.
Another interesting finding was that 100% of the respondents said their investment banker added value, albeit in varying degrees. Given three choices (significant, moderate, none), 69% of respondents answered that their bankers added “Significant“ value while 31% answered “Moderate” value. In retrospect, sellers clearly saw the value of having an experienced transaction professional on their team as they structured, negotiated, and ultimately, closed the most impactful transaction of their career.
The Fairfield University study highlighted the valuable role an investment banker provides to a client in an exit process. It also (finally) provides data to help educate and ease the concerns of using an investment banker for first time sellers. With over 250 transactions completed in the past twenty years, the professionals at EdgePoint, are intimately aware of the challenges sellers encounter during an exit process. Our proven track record of successfully closing transactions is grounded in the unbiased guidance and counsel to our clients.
© Copyrighted by EdgePoint. Matt Keefe can be reached at 216-342-5863 or via email at firstname.lastname@example.org.
 Michael B. McDonald IV. Fairfield University. October 2016. The Value of Middle Market Investment Bankers.