Investment bankers have created popular book titles like ‘too big to fail,’ ‘other people money,’ and ‘master of the universe.’ This title indicates that the investment banking profession yields the potential to influence beyond corporate balance sheets. If you asked from anyone about the best group in investment banking, then one name will come up, i.e., Mergers and Acquisitions. But, people often say that M&A investment banking provides intellectual tasks and the best exit opportunities.
Besides tedious work, M&A investment banking offers enormous benefits. So, in this blog, we reveal what M&A investment is and the process.
What is M&A Investment Banking?
The role of investment bankers in M&A deals is to advise other companies to execute transactions in which the owners sell their businesses to buyers, acquire small companies, and obtain assets from the companies. The bankers will manage to sell – the side and buy-the side in M&A deals.
In short, investment bankers oil the wheels of M&A in every industry. Companies usually hire them to advice on the process and help them benefit from their expertise in due diligence, deal structuring, negotiation, and valuation.
Investment Banking M&A Process
If you are working in investment banking or corporate development, you must create an M&A deal process to follow. Investment bankers advise their clients on M&A steps in this process.
1. Preparation and Planning
The first step in the M&A process is to collect information about the company, as it helps your advisor effectively represent you in front of buyers. The collected information includes history, supply chain, products/services, distribution channel, sales strategies, and many others, but most important is evaluating financial performance. This step is quite intensive and needs hard work from you.
Your advisor will use the information to draft the Confidential Information Memorandum (CIM). It is a detailed report about market positioning, organization history and milestone, structure, etc. From CIM, the advisor will create – page high-level
overview, which is used as a marketing Teaser that produces initial interest in your company and maintains anonymity. The teaser is sent to companies and signed NDA before receiving the complete CIM.
2. Marketing
At this stage, the advisor will contact buyers and obtain their interest by emailing the teaser and following up with calls and emails to address any queries. Upon receiving the NDA, the advisor distributes the CIM to provide detailed company information and transaction objectives. Usually, the buyers will expect two weeks to review CIM and show interest. Meanwhile, the advisor will monitor the process, answer questions and respond to supplemental information requests arising during the reviewing process.
3. Qualification and Refinement
In the process, the advisor will receive preliminary Indications of Interest (IOI) from buyers. An IOI is a non-binding offer where they will provide valuation range, financing source, timeframe for due diligence structure about the transaction, and plan for post – transactions operational and organizational structure.
Multiple IOI is necessary to create a competitive environment to help you get the best terms and valuation for your interest. However, the price is the primary consideration while comparing IOI, so it is crucial to consider cultural fit, potential to complete a transaction, purchasers’ reputation, and source of finding. By considering all IOIs and buyers, the advisor will review the conditions and shortlist companies to invite for management presentations.
4. Selection and Structuring
The management presentations are the first step in the selection and structuring phases of the process. You meet potential buyers for the first time to present your management team and company information and communicate your transaction goals. This is your chance to position your company as an attractive investment opportunity. In-person presentations are an excellent way for you and potential buyers to get to know each other professionally and personally.
After the management visits are completed, interested buyers will submit a Letter Of Intent (LOI). This sets out the framework for the deal, including the purchase price, closing date, and sources of financing. It also includes terms such as length of exclusivity, exclusive rights, and any additional terms that may be relevant to the deal. After carefully considering all aspects of the LOIs, you will choose one company to proceed with. Both sides have the right to withdraw from the deal. However, the signed LOI creates a period where both sides can engage in business with other companies. The buyer will invest significant resources in due diligence (lawyers, accountants, etc.) by agreeing to the exclusivity period. You want to ensure the buyer is not actively selling the deal to others.
5. Due Diligence
With the time of exclusivity, both parties will conduct the last due diligence efforts. In this stage, you can expect potential buyers to be meticulous in evaluating all aspects of business, including financial records, physical structure, human capital, customer acquisition, growth, and competitive landscape. The advisor will determine all progress, solve the related concern, and prepare the detailed information. In the meantime, the advisor will conduct due diligence about purchasers to confirm management fit and ability to close the deal.
6. Final Negotiations and Closing
After a successful due diligence phase, the parties and their respective legal departments resolve any price, structural, and technical differences in final negotiations. You and your advisor will also create a communication plan for employees, stakeholders, and the wider community. After all communications and documentation are in order, the buyer and you coordinate the closing. This concludes the lengthy M&A process.
Conclusion
M&A in investment banking offers some benefits, especially in larger banks, and it gives you many exit opportunities more effectively than groups like ECM and DCM. M&A is always better than a robust industry team, especially if you are an expert in the industry and have qualified work experience in the matching field. If you want to make a career in investment banking, earning probability is higher
