The unique ability of our firm to protect and maximize the value of your most valued asset is “hand in glove” to the mission of our wealth management division. For most small business owners, the issue has always been that at most investment banks was the business was really centered on servicing the institutional client or the multinational conglomerate business, we only work with company owners and board that operating in the $2 to $250 million EBITDA space. That is considerably different from what you will find at most wirehouses like Morgan Stanley or Goldman Sachs.
What we found is that those skill sets are not necessarily aligned to serve the entrepreneurial client. For that reason, we decided to approach this in a different way and decided to create an “outsourced model.” As I mentioned earlier an investment banker that is serving the institutional client in many cases could be conflicted because they are actually representing a business on the institutional buy-side that we may be marketing. So, therefore, we believe having the independent adviser enables the entrepreneur access to the best representation of the interest of the business owner without conflict, which is critical to running a disciplined process.
Why is this different? First of all our process is unlike what you may have experienced at the majority of wirehouse investment banking groups that are really more aligned to serve the development offices of the large multinational business. They may have forgotten to tell you that they spend much of their time providing strategic financial advice to these giant corporations as they are considering what businesses to enter or acquire, what businesses are out of favor or could be disbanded and/or sold. In addition to that, these same investment bankers in those capital markets are supporting the treasury office of those large multinational conglomerates helping them ideally position their balance sheets to debt and equity underwriting in the public market which is where these investment banks earn their high revenues underwriting new issues for their respective firms.
Over the last twenty years, we have researched the overall boutique investment banking market and executed exclusive formal referral agreements with over 43 firms that employ over 1200 investment bankers who specialize in advising small companies, like yours. We have profiled each of those 1200 investment bankers' experience. We know the industries in which they have spent their careers understanding and conducting business, we know the types of deals that they focus on—whether it is placing capital or executing merger and acquisition assignments. It is our job to dive deeply into each of these bankers' business' and thoughtfully introducing a select few whom we believe have the deal credentials to serve you and achieve your objectives, whether it is to raise capital, recapitalization, or sell your business.
Another benefit of our process is that we were able to select firms that have fee structures and industry expertise and the regional presence to bring the minimum bar down to where we can deliver exceptional institutional caliber investment advisory services to companies as small as those with a $10,000,000 enterprise value. These larger international banks typically don't pick up coverage until a company exceeds 250,000,000 and above in value.
One of the things that we ideally look to achieve by having a network of talented investment bankers with strong industry knowledge and with real-time experience is to be able to provide a client with pre-transactional advice. As I may have mentioned earlier, we are currently seeing the most active solicitation market we have seen during the past five market recoveries.
With this activity, I thought I would just focus on what is going on in the current market. The mergers and acquisition, in general, are like any efficient marketplace driven by forces of supply and demand and we have an extraordinary amount of demand right now that you may be experiencing in the form of solicitations from suitors. I guess there are two primary buckets and buyers in both are very flush from capital and so today they are under pressure to find ways to deploy the capital to return a profit to their shareholders. The first is that the private equity firms.
When private equity fund raise money for institutional investors like pension funds and insurance companies they typically receive a six-year commitment from those investors to back them in transactions or to provide the equity to deploy. So when they raise a Fund, they will typically have six years, and why this is important here is that with many of the funds their six years are up. But there’s still a tremendous amount of this money that remains unused.
The private equity funds, the average life of those funds is normally 5 to 6 years and what we’re saying is that the charity of those funds that were placed with the private equity companies are maturing. What a private equity firm makes an investment or acquisition there typically investing with the objectives to build that business, then recap it or sell it within a 3 to 7-year time horizon.
What to Do Next?
When entrepreneurs are considering the potential sale of the business ideally you want to consider a deal when capital markets are receptive. So ideally when your company is in a good healthy position and capital markets are aligned as they are today and your business shows an opportunity for growth it becomes time to consider capitalizing on the timing of the market.
One of the things that we pride ourselves on is the ability to introduce you to one or more investment bankers that know your segment of the market inside and out and can give you pre-transactional advice. Counter that to the slippery slope of opening your doors and welcoming in one of the solicitors to do their due diligence. This is really one of the core reasons we develop the "outsourced model" which was to protect our clients from exposing your business to a potential competitor who laid a nonbinding letter of intent in front of you that look attractive. I believe a much less risky proposition and a much more preferably way to go about it but would be to have some pre-dialog with our qualified investment banker who was looking to earn the right to represent you and to provide you with some very sage guidance based on firsthand experience within the market without exposing your business to that outside dynamic. Our approach would be to evaluate the business and where it stands today, and whether the timing is appropriate based on your microeconomic conditions within the overall economy if it makes sense then to approach the market. If all indicator were aligned properly, we would advocate hiring a banker to run a competitive process.