Banks must first pitch to clients in order to be selected as their advisor (or one of their advisors) for a particular transaction. Typically, the senior members (Managing Directors) of a sector team will be the relationship bankers. These often have close ties with C-level executives (Chief Executive Officer [CEO], Chief Financial Officer [CFO], Chief Operating Officer [COO] etc.) in companies operating in the relevant sector. The quality of relationships that a Managing Director has formed and nurtured can be pivotal to the success of a team, as such relationships can be the primary source of deals.
Bankers first create a pitchbook for the prospective client. Pitchbooks form part of a bank’s pitch to senior executives of companies and contain general information such as an overview of the investment bank, its experience and capabilities and the ways in which the bank can offer value for money. Deal-specific pitchbooks are tailored to specific transactions (such as IPOs or acquisitions). This, in addition to the nature of the bank’s previous relationships with prospective clients, can lead to banks receiving invites to personally pitch to clients in order to win deal mandates at what is known as a ‘beauty parade’.
Key Parties Involved
Sellers (Vendors) / Buyers (also usually borrowers)
- For instance, private individuals (including directors), investors (including shareholders), corporations and public bodies.
- Typically banks, private investors, private equity firms or institutional investors seeking a return on their capital. These will base a decision to lend on the potential level of return and the borrower’s credit rating, reputation and performance.
- Financial advisors that typically advise and assist corporations and public bodies looking to raise money. This includes linking clients to potential investors; facilitating the issue of shares or bonds, for instance through helping to price the issue; and analysing the financial state of companies for the purpose of valuation and risk analysis. Investment banks also trade securities such as bonds, shares and derivatives on behalf of clients.
- In an M&A context, lawyers generally produce the key documentation; negotiate terms; advise on issues relating to finance, real estate, tax, litigation, employment, competition law, intellectual property (IP) and any regulation that may be relevant to the deal; and pre-empt and mitigate risks.
Accountants / Auditors
- Help to prepare or verify financial statements and analyse the financial state of companies for the purpose of valuation and risk analysis.
- Advise on existing strategies, firm performance and potential future strategies.
- Specialists in specific fields (e.g. pensions) that analyse statistics to produce forecasts that inform and influence decisions.
- Can be enlisted to promote the fact that parties are acting appropriately, thus minimising negative public attention.
- Set and enforce various legal requirements with which parties must comply when executing a transaction. Examples include the Financial Conduct Authority (FCA) and the Competition department of the European Commission.
Environmental / Social Impact Experts
- Assess the environmental or social implications of a transaction to help determine whether it can legally proceed.
- Incorporated companies must be registered with Companies House and must (under the Companies Act 2006) file information including annual accounts and returns. Companies House must also be notified if certain changes are made to companies.
It is worthy to note that parties involved in a deal will typically be required to sign a Non-Disclosure Agreement (NDA).
- Non-Disclosure Agreement (NDA): sellers can prevent buyers from publicly revealing sensitive information to which they become privy throughout the due diligence process by requiring them to sign a non-disclosure (or confidentiality) agreement. Market knowledge of a proposed transaction tends to push up the share price of the selling company, making it more expensive for bidders to offer a reasonable purchase premium. In addition, prohibiting buyers from leaking confidential information can ensure stakeholders (such as other competitors) cannot acquire and capitalise upon inside knowledge if the deal falls through at a later stage, further indicating the importance of such an agreement.
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By Jake Schogger - City Career Series