Those were heady days, The Merger Verger recalls, when you could make a fee by helping a client acquire a company and then make another fee a few years later helping the client sell the same company after the acquisition failed.
So why should an investment banker give a rat’s ass about acquisition integration?
Because those days are over. Clients are smarter. And even smart investment bankers are smarter. So let’s think about the M&A advisory business and acquisition integration.
- If an investment bank really understands the issues associated with integrating a target company, it can help its clients make more successful acquisitions.
- If an investment bank understands the challenges associated with integration, it can prepare smarter and more accurate pro forma numbers, which will lead to a greater likelihood of a client hitting its ROI threshold.
- If an investment bank is aware of the operational aspects of the companies it’s selling, it will create more informative (and more accurate) selling memoranda, which should increase the selling price.
- If an investment bank is conscious of the issues of integration, it can better develop and focus its list of buyer prospects in an exclusive sale assignment, which also should increase the selling price.
- If an investment bank is realistic about the expected difficulties of an integration process, it will prevent its clients from knowingly overpaying for a target in a bidding war. (I know, that is a ridiculous thing for The Merger Verger to suggest but it could happen, couldn’t it? Maybe? Once? Just for fun? No? Damn.)
If an investment bank truly wants to build the reputation of providing its M&A clients with a service that adds actual value and is competitively unique, it should be thinking about the process of acquisition integration and about the needs of the client after the deal has closed. There’s a lot to learn here – and much of it not easily quantifiable – but the payoff should be high.
Query: Is there an investment bank out there that would be willing to attempt to capture these benefits by building its own integration expertise, providing ongoing client service through the whole of the purchase and integration life cycle? Wouldn’t that keep one nicely “in bed” with the client and also create a track record that was superior not just by number of deals done but by amount of value created? Or is that too long term of an investment for an investment bank to make?
About the art: The pirate sketch is by Disney artist Marc Davis (1913-2000) for the Pirates of the Caribbean films. Davis did artwork for such famous Disney films as Peter Pan, Sleeping Beauty and 101 Dalmatians. A collection of his work is on exhibit now through November 4, 2014 at the Walt Disney Family Museum.