The Choice: Specialist vs Generalist Investment Bankers

This article was written by John Rogers, Senior Consultant, Investment Banking.

When planning for the sale of a middle-market business, one of the biggest choices a business owner will make is which investment banking firm they hire to help facilitate the sale process. This decision can weigh heavily on business owners. After all, most business owners only engage in an exit of a middle-market business once in their lifetime. There are generally two types of investment banking firms: ones that specialize in a specific industry, and ones that are more of a “generalist” in nature and industry-agnostic. Throughout this article we will explore some key considerations that business owners should evaluate when it comes time to select the right investment banker to assist in positioning their company for an exit.

Investment Banking Specialists

The benefits of using an investment banking firm that specializes in a specific industry include industry specific knowledge, knowing the key players within the industry, and having tightly knit relationships with those market participants. Investment banking specialists are typically well-versed in specific industry trends and may identify competitive advantages and synergistic relationships that will bode well during a sale process. This knowledge and experience may help the investment banker position the business, which in turn may help bring key industry players to the table.

However, the main disadvantage in using an industry specialist is that they tend to gain a sense of comfort with a few key industry buyers, which may limit creativity and open-mindedness when identifying market participants to include during the potential buyer identification process. Since market participants in an investment banking process always determine valuation, not bringing the right potential buyers to the table could end up being a very expensive mistake.

Investment Banking Generalists

Most investment banking generalists have experience across a wide range of industries. As a result, generalists can bring a wealth of knowledge and experience in the “art of closing a deal” due to the wide range of deals they’ve seen in various industries. We often say that “every deal can die a thousand deaths.” Due to investment banking generalists seeing a wide range of transactions, they, more likely than not, have also seen a lot of deals die for a variety of reasons. Through these experiences, generalists have a keen eye for identifying potential difficulties or speedbumps that could be encountered, which allows them to address the challenges at the outset of the process and control the narrative. This is not to say investment banking specialists do not see a wide range of deals; that depends on deal flow and how niche the industry is in which they operate.

Investment banking generalists bridge the gap of industry-specific knowledge through their extensive range of sophisticated databases utilized. These platforms contain a wealth of industry specific information that can be converted into “business intelligence” and utilized to market the middle-market business, maximizing the attractiveness to potential buyers operating in that industry. Leveraging these databases allows the investment banker to get up to speed through industry research, including recent transaction multiples, active buyers within the industry, and identification of potential synergistic relationships between companies, which enables them to effectively market the business to potential buyers. In addition, the business owner is a valuable source of information; know their company better than anyone, can add industry insight, and highlight favorable synergistic and competitive relationships that could prove valuable to potential buyers.

Bonadio’s Investment Banking Practice

At Bonadio, our Investment Banking team is made up of a unique blend of professionals, with diverse backgrounds, skills, and experiences. While we consider ourselves “generalists” as we take on deals in a wide range of industries, we also have the benefit of being able to leverage the industry experience of over 100 partners in our accounting firm, which is a competitive advantage compared to other investment banking generalists. Typically, the phrase “best of both worlds” is not feasible, but in this case, it might just be!

If you are thinking about selling your business and are curious about learning more about anything described in this article, feel free to contact us.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.