For entrepreneurs exploring the business sales process for the first time, the exact role of investment banking in M&A can sometimes seem confusingly unclear. It doesn’t help that professionals who perform similar roles for their clients sometimes have completely different job titles, such as business brokers or M&A advisors.
While nearly all investment bankers have the core skills of being able to arrange financing and help negotiate complex financial transactions, their roles can vary widely depending on a business’s size and the client’s familiarity with the investment banking M&A process.
If you’re wondering where your business fits into the four main categories or how an investment banking professional might be helpful to you, read on to learn more.
1. Investment Banking in M&A for Large Companies
In this part of the market, companies are well-established and have a significant market share, with a valuation of $1 billion or more and annual revenue exceeding $500 million. These organizations are often publicly traded or backed by large institutional investors.
When large companies decide to explore options for growth, their executives often have highly confidential conversations with a small circle of trusted investment bankers to discuss where they’re going and what they want to accomplish. These advisors are extremely well-connected, which gives them a unique understanding of how certain businesses or divisions might fit together, how one company’s plans might be beneficial for another company, and the reaction of the stock and bond markets if they were to join. This positions them to play the role of trusted intermediary between potential business partners.
A good example of this dynamic happening right now is with TikTok, which is under extreme pressure to change ownership to avoid a ban on its use inside the United States.
TikTok’s enormous size greatly limits its options. The companies or private equity firms capable of owning it could literally be counted on two hands, and the banks that could arrange a public offering of this size are just as limited. There might be 20 investment bankers in the world with the credibility to help solve this problem, all of whom are competing with each other for the opportunity to do so.
2. For the Middle Market
Although middle-market companies aren’t quite as sizable as the organizations in the category above, they’re still plenty big. These are often mature businesses with consistent profitability, valued at between $100 million and $1 billion, and annual revenue between $50 million and $500 million.
Usually, these companies look to investment bankers for assistance with debt financing or moving the company’s ownership from one institutional investor to another. Because there are hundreds of parties who could potentially participate in an investment banking M&A transaction, either as a source of capital or as a potential owner, the investment banker’s strategic role is less about being a confidential intermediary and more about helping to execute this technical process of transferring ownership between investors in the most efficient way possible.
3. For the Lower Middle Market
Companies in this market area are often smaller, closely held businesses, valued at between $10 million and $100 million, with annual revenue between $5 million and $50 million.
The most highly skilled investment bankers who serve the lower middle market distinguish themselves in the strategic role of process experts in M&A who have a special interest in helping business owners who rarely complete business acquisitions or sales. At Oaklyn Consulting, for example, our clients are often unfamiliar with the M&A process and are seeking a guide for what can be a lengthy and emotion-filled journey. We spend a lot of time educating and then counseling our clients so that they can achieve the best possible outcome from the options available to them in an unfamiliar and life-changing transaction.
In this part of the market, professionals who provide only mergers and acquisitions advice, and do not also advise on financings or recapitalizations, are also known as M&A advisors.
4. For Business Brokers
The final category of mergers and acquisitions transaction advisors, often known as business brokers, serves businesses with a valuation under $10 million and annual revenue of less than $5 million. Their strategic role is to create visibility for buyers, often individuals seeking an existing business to buy and operate, about the inventory of businesses for sale. And for the seller, the strategic role is to generate awareness of and demand for their business by listing basic facts about the business where potential buyers might see it.
Finding the Right Match for Investment Banking in M&A
If you’re interested in selling your business, it’s important to learn which investment bankers, M&A advisors or business brokers are best suited to serve you and which are not. Find an investment banker who specializes in your area of the market and makes it clear that they enjoy working with businesses like yours.
At Oaklyn Consulting, we love working with our clients in the lower middle market, and we think it shows. However, our defining metric is not the size of a company, it’s the difficulty of the decision that a business’s owners face. Sometimes it is the urgent need to change ownership because of changes in the market; sometimes, the catalyst is financial distress or the changing personal needs of the founder or a silent partner. Sometimes, it’s the inability of a group of owners to reach an agreement among themselves about the future of a business.
Working as consultants and not brokers, we provide white-glove, “big company” service to clients who might otherwise not have access to it, serving as a guide on their M&A journey and staying by their side through the expected highs and lows. Our clients’ transactions almost always have uncertain or complicated aspects that make them less than ideal for the traditional investment banking M&A model.
If you think Oaklyn Consulting would be a good fit for your business, let’s talk about how we can be of service.
