Frequently Asked Questions
Back to FAQ'sWhat should I look for in choosing an Investment Bank?
Investment banking is a service business, and the client should expect top-notch service from the investment banking firm. Generally, only large client firms will get this type of service from the major Wall Street investment banks; however, typically, smaller, boutique investment banks better serve companies with less than about $150 to $200 million in revenues. In selecting a reputable, boutique investment bank, such as Lexington, consider the following:
Services Offered - For must functions; the services should go well beyond simply making introductions, or "brokering" a transaction. For example, most projects will include detailed industry and financial analysis, preparation of relevant documentation such as an offering memorandum or presentation to the Board of Directors, assistance with due diligence, negotiating the terms of the transaction, providing guidance and coordinating legal, accounting, and other advisors, and generally assisting in all phases of the project to ensure successful completion.
Experience - It extremely important to make sure that an experienced, senior member of the investment banking firm will be active in the project on a day-to-day basis. This is a real benefit when working with a boutique firm versus a larger Wall Street firm where ‘lower level’ associates may do the ‘heavy lifting’ with limited exposure from a senior banker in the firm. Depending on the type of transaction, it may be preferable to work with an investment bank that has some background in your specific industry segment (though not required). The investment bank should have a wide network of relevant contacts, such as potential investors or companies that could be approached for acquisition.
Record of Success - Although no reputable investment bank will guarantee success, the firm and/or its professionals must have a demonstrated record of closing transactions. Collectively, the professionals at Lexington have accumulatively and directly raised or facilitated in their careers in excess of $8 billion in private and public equity and debt and over $3 billion in real estate and project financings.
Ability to Work Quickly - Often, investment banking projects have very specific deadlines, for example when bidding on a company that is for sale. The investment bank must be willing and able to put the right people on the project and work diligently to meet critical deadlines. Most sophisticated banking firms will have industry-leading databases for transaction comparables and the critical resources to deploy to meet realistic funding timelines.
Fee Structure - Generally speaking, most reputable investment banks will charge an initial up-front fee, which may be one-time, monthly, or both, with the majority of the fee contingent upon successful completion of the transaction. It is important to utilize a fee structure that aligns the investment bank's incentive with your own. The reputable investment banks, like Lexington, will also deduct any up-front fees, often referred to as a retainer, against the total completion fee of the transaction. At Lexington, we seek to increase the value of the proposed transaction far in excess of the advisory fee.
Ongoing Support - Having worked on a transaction for your company, the investment bank will be intimately familiar with your business. After the transaction, a good investment bank should become a trusted business advisor that can be called upon informally for advice and support on an ongoing basis and/or additional transactions such as future acquisitions.
Because investment banks are intermediaries, and generally not providers of capital, some executives may elect to execute transactions without an investment bank in order to avoid the fees. However, an experienced, quality investment bank adds significant value to a transaction and can pay for its fee many times over. To start, most investment banks know how to identify the right financial institutions; which reflect the specific type and size of funding, investment criteria and industry focus and significantly, investment bankers play a critical role in assisting client companies in the proper positioning, packaging and structuring of an offering.
The investment banker has a vested interest in making sure the transaction closes, that the project is completed in an efficient time frame, and with terms that provide maximum value to the client. At the same time, the client is able to focus on running the business, rather than on the day-to-day details of the funding transaction, knowing that the transaction is being handled by professionals with sound experience in executing similar yet complex projects. At Lexington, our bankers provide direct senior-level advice, creativity and transaction execution tailored to clients individual needs.
