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Blog calendar    Jan 30, 2025

Don’t Go It Alone: Leveraging Bankers in the Exit Process

When you accept growth equity, exit readiness – including future fundraising readiness – should be top of mind from the get-go. When companies put the right disciplines in place early, they are better equipped to execute a successful transaction later. This blog series shares best practices and other resources to help CEOs and their management teams prepare for their next transaction.

A recap or sale process can be quite complex, not to mention time-consuming, so we often advise CEOs and boards to engage investment bankers to help with readiness, reduce operating distractions, add credibility to the process, and optimize the outcome via competitive tension. In fact, the majority of Edison exits involve a sell-side banker; their added industry and process expertise, combined with their extended networks, greatly supports our portfolio companies and increases the chances of getting to a successful outcome. 

Still, knowing what to look for in a banker can be tricky, and enlisting the wrong advisor can have consequences. Here are ten things to consider when evaluating a banker: 

  1. Domain Expertise
    Not every investment banker has the relevant market experience and network for every business. You need a banker who is well-versed in your specific industry and business model. You should inquire about the number of deals they have completed in your space. Additionally, look for a banker who offers unique and refined perspectives, rooted in deep domain expertise, rather than regurgitating what can be found in a generic industry report.  

  2. Business Size/Stage Sweet Spot 

    You’ll want to work with a banker who has experience selling businesses at your stage and preferred transaction type/size. How much are you looking to raise or sell? Ask candidates for comps, both in terms of recent deals that they’ve led or know about in the market. Do the businesses they reference sound like yours?

  3. Familiarity with Value Drivers
    When speaking with investment bankers, drill down into what KPIs they think most inform success, both in terms of the amount of interest from buyers and the ultimate price. Was it a certain threshold of growth, profitability, or retention? Something else more nuanced? Understanding what metrics most inform value well in advance might help you optimize the business for the process.
     
  4. Reputation with Buy Side
    Having a banker doesn’t mean much if potential buyers don’t know and respect them. This is why it is so important to conduct reference checks, both with previous buyers and former clients. Find out how the buyer felt working with that banker on the deal. Would they buy another company from them? Similarly, find out how the selling CEO felt about the level of support and connectivity they received. Would he or she hire them again? Ultimately, you need to be assured that the banker will represent your interests well. 

  5. Banker Mindshare/Resource Allocation
    When we talk about a “banker,” we’re not just talking about a single person. If you choose to hire an investment banker for your exit process, you’ll be working with a team. It’s crucial to understand not only who makes up that team but also how they operate and contribute to the process. Ensure that the team has the resources necessary to work the deal and that there are enough senior bankers involved to avoid rookie mistakes. In fact, you should make sure you know who the person representing the company to the market is (it should be a senior banker) and have assurances that that person will not change once you hire the bank.  

  6. Pitch Strategy/Value Maximization 

    Your banker must be able to articulate a clear narrative to the market. Listen carefully to how they pitch for your business. Do they really understand the important intricacies? This is why it’s important for them to truly understand and have experience with your specific industry and stage. If they represent the company incorrectly or poorly or to the wrong buyers, it will inevitably lead to a less-than-optimal outcome. 

  7. Timeline/Process/Resources/Outputs 
    Exit processes often take time, typically at least 6 months. Ask about expected timelines and talk about their experience meeting them, including what has caused delays in the past. Often, it has something to do with the company’s ability to respond to requests in a timely manner. It’s a stressful endeavor, fielding an onslaught of data requests from a plethora of buyers. To save yourself unnecessary angst, gather and cleanse as much KPI data as possible upfront and select a banker with the resources to take that data, extract what’s needed, and produce an output that will be shared ubiquitously and will serve to answer 90% of buyers’ initial questions.  

  8. Strategic Acquirer Network
    Your banker should have a referenceable network of relevant acquirers with whom they have completed transactions within the last two years. They should be able to introduce you to acquirers who will be able to quickly understand the strategic fit between their business and yours. Ask for the examples and references. Confirm that their thesis on who might make for a logical buyer is accurate and that they have relationships with decision-makers in these organizations.  

  9. Close Rate
    This one is simple. You’re not paying for anything less than success. Ask not only about the number and type of deals that they closed in the space but also about the deals they were unsuccessful at selling. Specifically, what is their close rate? This will help you understand whether the bank takes on too many clients and hopes to close just enough of them to pay the bills for the year, or whether they close most of the opportunities they bring to market. Understanding why opportunities didn’t ultimately get done will also help you and the banker get aligned and address potential issues early. 

  10. Business Model & Fees 

    It’s important to get an understanding of a banker’s fees, terms, and incentives. Carefully consider any contract terms that might restrict your exit options down the road should the banker be unsuccessful initially (e.g., tail provisions). Also, consider how you can align your interests with theirs. As the late great Charlie Munger once said, “Show me the incentives and I’ll show you the outcome.” Think about creating a Lehman Scale, or a reverse Lehman Scale, as the case may be, to create better alignment.   

Investment bankers are often an essential resource in driving a sale process. Bankers provide leverage to resource-constrained CEOs and management teams and create competition tension to ensure the best possible deal is reached. Identifying the right banker, however, is not an easy task. Relevant experience working with companies of your size in your market is paramount, as is having enough dedicated resources and creating economic alignment. 

Download this scorecard to help you move through the banker evaluation process.

Ben focuses on investments in fintech, healthcare IT and enterprise solutions. He has been involved in approximately $200 billion of transaction volume over the course of his career, spanning multiple sectors and deal structures, with a particular focus on investing in and supporting growth-stage software companies.