The 5 Key Considerations for Choosing an Investment Banker
I recently was able to sit in on a “banker bake-off.” It was very interesting to sit on the side of the table with the management team and hear how the various banks “pitch” their strengths. It didn’t take long to identify how each bank brings something unique to the table.
One bank talked about its relationships with the buy-side accounts while another bank highlighted its research analysts’ expertise in the company’s therapeutic space, and yet a third bank spoke highly of its track record for successfully getting private companies public.
At the end of the day, there was an enormous amount of information for the management team to digest and decipher, i.e. the good and bad of what really mattered to them. Here are some of the things we talked through to help them decide on who could truly be the best fit for them and which investment banks would be the right choice to participate in their deal.
The primary objective of a “bake-off” is to identify/rank the preferred bookrunner(s). Keep in mind that the bookrunner(s) will have primary responsibility for organizing the IPO and maintaining the order “book” while the co-managers are members of the syndicate, with limited responsibilities. Ideally the goal is to invite a strong group of potential underwriting partners to choose from. When selecting a banking team, key areas to focus on during the bake-off generally fall into five buckets:
1. Enthusiasm/Preparation. Is the presentation customized to your story? Are the appropriate banking team members attending the bake-off? What level of vetting has the bank already conducted with its research analyst to date and what can they share about their analyst’s view of your company? Is the bank currently working with any of your competitors? If so, has it decided how to address potential conflicts of interest?
2. Capabilities/Credentials/Experience. Who will be the members of the investment banking team directly involved with your company’s IPO? Who will lead the equity capital markets and syndication functions for your company’s offering? Who will be your company’s primary day-to-day contact at the banking firm? What are the most relevant transactions they have worked on and how successful have those deals been?
3. Positioning/Knowledge of the company/Valuation methodology. What is the recommended positioning of your company? What is the proposed strategy for positioning relative to other comparable or competitive companies? Which companies represent the best comps? How would your company be differentiated from some of the recent IPOs (attempted or completed) in the life science sector? Has the bank provided a description of the valuation methodology it is using to value your company? What valuation metrics will investors focus on?
4. Execution strategy. Are the senior members of the investment banking team committed to attending the organizational meeting, drafting sessions, and other key meetings? What process does the bank follow for pricing and allocating shares? What are the bank’s views on stabilization activities and strategies, including willingness to commit capital?
5. Aftermarket support. Have the banks described their firm’s aftermarket services, including non-deal road shows. What conferences and other industry or investor events does the bank sponsor that are suitable for your participation? Ask the bank to describe its research coverage expertise in the life science industry, and in your targeted therapeutic areas, if any.
Even though these are rocky financial markets for small cap healthcare, we remain optimistic that the markets — while certainly more selective — are not completely shut. We believe that good private companies will still be able to get out.
Like in previous years, we are hopeful for a more favorable outlook post-J.P. Morgan when we think the buy side typically resets their investment portfolios for the New Year. So if you are a private company pondering a mezzanine financing or an IPO, or perhaps a public company planning to undertake a secondary offering, it’s critical to have the correct investment banks on board.
Selecting the best bank for you means finding a team that not only is enthusiastic and understands your business, but that also has the bandwidth to commit the time to get the transaction done. Continue to build your relationships with your investment banking counterparts and please consider contacting Westwicke if you are interested in more insights on how to attract the investment bank or banks that make the most sense for your company’s needs.
Patti Bank is a Managing Director on Westwicke's life sciences team. She has extensive analytical experience, specifically within the pharmaceutical and specialty pharmaceutical sectors. She has a BA in neurobiology and economics from Rutgers University and an MBA from Drexel University.
Leave a Reply