How entrepreneur-first investment banking creates sell-side M&A success

The gap between entrepreneurs and investment bankers is real. So how do we level with entrepreneurs to help them sell their business?
How entrepreneur-first investment banking creates sell-side M&A success

Working on the sell-side means working with entrepreneurs – either to help them raise funding to grow their business, or to sell (parts of) their business completely. But in order to level with the client, sell-side professionals need to communicate with the entrepreneur on eye-level.

Chris Younger, founder of boutique investment banking firm Class VI Partners, calls this an entrepreneur-first approach to investment banking. In his 20+ years of experience, Chris has closed 47 deals worth more than $2.5 billion.

In this article, we will dissect what entrepreneur-first really means – and how it can help us become better sell-side M&A professionals. This article is based on Chris’ appearance in the Wall Street Lab podcast.

Are entrepreneurs your true passion?

Ask yourself these questions: Is working with entrepreneurs your romance? Do you enjoy interacting with people who build businesses from scratch, and who do it out of passion?

If the answer is a yes, you are ready to have an entrepreneur-first mindset.

If the answer is no, is investment banking really for you?

Successful entrepreneurs are different to most businesspeople out there. They are passionate, ambitious, persistent, and resilient, and share unique traits – and some of them would be called flat-out weird.

As entrepreneur-first investment bankers, we must enjoy having long conversations with them. Understand their ambitions and passions. But it all boils down to a simple fact – you need to be fired up by meeting entrepreneurs first. It should be more than just a duty for you.

Be the missing link

Entrepreneurs approach you to help find them a suitable buyer for their businesses. So you are the person connecting two parties. Remember, these two parties don’t speak the same language.

Someone who has built a business from scratch really believes in the idea, loves the initiative, and treats the business as if it was their baby. The buyer of the business talks numbers. You are therefore the missing link between the two.

Being a brilliant missing link, is the first step towards entrepreneur-first deal making. You need to know the business inside out to really represent the entrepreneurs and narrate their story in the language of a buyer.

Be it business history, suppliers, customer base, growth prospects, or industry trends, everything about the business must be at your fingertips. For that, you must be willing to understand everyone remotely related to the industry your entrepreneur serves.

This will not only make you the ideal representative of your entrepreneur, but might also help you find potential candidates for the deal.

Entrepreneur-first sell-side professionals are able to go beyond the numbers, and tell the entire story of the business.

Prioritize Early Planners

A business may seem great from the outside. The devil, however, lies in the details. Professional buyers will scan every inch of the business extremely carefully, especially financial documentation.

It is therefore important that you prioritize entrepreneurs who are early planners. Those who reach out to you a year or two in advance to prepare for a potential exit. This will give you the chance to have a detailed look into the business and help the entrepreneur improve on factors that can downgrade the deal.

A few things to look out for: Are all financial records well-kept? Is the client base diverse enough? Because if most of the revenues are coming from just one client, that is enough for an investor to lose interest.

Help the entrepreneur make their company an offering that an investor can’t ignore.

Entrepreneur-first investment bankers are ready to help entrepreneurs improve their business to get them exit-ready – not just sell quick and move on.

Find the fence-sitters

Your job as sell-side advisor is to get the entrepreneur the most out of this deal. A premium over the fair value of business is what everyone loves.

For that matter, look out-of-the-box for potential buyers. The usual suspects, or investors who have been buying companies in the same industry, might not be interested in offering a high value to your client’s business. Why? Because they have done their homework and know the valuations well. Or because they are running out of money because of all the other deals they’ve made.

An investor who is interested in the industry but hasn’t had the chance to make a deal, or a private equity company that has been outbidded by other investors previously, might as well pay you a premium over the fair value.

It’s OK to go back!

Since the priority is to get the right value for your client’s business, you may have to take a step back sometimes if the time is not right.

In situations where the market is overall down, or there are issues with your client’s business, it might be better to convince the entrepreneur to go back, make improvements and get back again. Remember to work with your client throughout and bring him back when the time is right.

Chris says that majority of the entrepreneurs who delay selling their companies in such situations tend to get a significantly better value, a year or two down the lane.

Entrepreneur-first advisors don’t push to rush the deal, but understand that the best deal can take time.

Conclusion

Getting on eye-level with entrepreneurs helps sell-side M&A advisors get more value for their clients and build more sustainable relationships. Listen to the full episode in the Wall Street Lab Podcast.

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