How Investment Banks Build Trust With Clients

For many business owners, exiting their business can be one of the hardest decisions they ever have to make. The decisions that go into the process seem endless. What type of sale should they be pursuing? Do they want to remain at the company in some capacity? How can they protect their employees? What price can they sell for?

An investment bank can help answer these questions and anticipate others that will come farther down the road. The key is finding which investment bank is the right fit. To learn more about how investment banks build trusting, productive relationships with business owners, we sat down with investment bankers Trevor Hulett and Geoffrey Smith. Smith is a managing director with Harris Williams and Hulett is a managing director with R. L. Hulett & Co.

Axial: How do you build a productive relationship with a business owner?

Trevor: We need to win their trust and this takes time. Their business is their baby. It’s their blood, sweat, and tears that have been sacrificed to build the business over many years and you need to earn their trust before being brought into the inner sanctum.

Geoff: Everyone does it differently. You have to ask questions and do a lot of listening. Good bankers listen more and talk less. It means putting down the phone and not multitasking, but really listening. Everyone is super busy today, but nothing beats looking a person in the eye and reflecting on what they are saying. You want to be a resource for them. You will ultimately develop a relationship based on understanding what they want. If you are just there to sell them, you are doing them and yourself a disservice.

Hopefully, you also have some references you can put them in touch with that have worked with you and can attest to how you perform in the good times and the bad. Clients often learn the most about their advisor when things are tough versus when they are going well.

Axial: What is the most important role the investment banker plays in the sale process?

Trevor:  We play the role of financial advisor but also psychiatrist. Selling your business can be a once in a lifetime event and is often times an emotional rollercoaster. There is an art to being empathic and listening. It’s not always about getting every last dollar for the business. There are other critical variables that come into play and it is more important to find the right solution for all parties. We have to find out what the owner’s financial objectives are, what their personal agenda is, what legacy they want to leave, what they want for their employees, and any other concerns they may have. We customize our process to fit their objectives.

Geoff: A lot of owners are used to running a business a certain way and the potential investor may have a different view or they could look at different aspects of the business in a different way. Having a banker that can help you understand how an investor might look at a business is so important. It’s not that one is right or wrong, but it’s about seeing the business through a different lens. We help owners understand the things that a new partner or owner will look at and help them understand why those things are important.

We also help owners through the emotional part of going through a sell-side process. They have to be ready to potentially hear some tough things, and that’s not easy. We also help them understand the next steps: if they are staying on, is there a personality fit, do they want to stay invested, etc. You have to ask a lot of questions and really listen to them.

Axial: What are some of the common issues you run into?

Geoff: Very few business owners want to spend time with investment bankers for various reasons, so they often come in guarded. You can earn credibility by being honest and talking about things owners don’t want to necessarily want to hear. Sometimes those conversations don’t end well, but this is a long-term game and you build credibility by conducting yourself honestly and consistently.

Trevor: There can be a hesitancy to run a sale process for a variety of reasons. The common psychology is to procrastinate and unfortunately often it is too late by the time owners decide to sell. The best time to sell is when a business has an upward trajectory and there’s a runway for growth and a reason to be optimistic. But that it’s a hard to time to walk away. A lot of owners can’t, and they stay on too long and they wind up going to market with a challenging story rather than a growth story.

But I talk with a lot of owners who have sold and then are sorry they didn’t do it sooner. There is life after a sale.

Axial: Is it harder to sell to private equity or a strategic buyer?

Trevor:  A lot of owners are sensitive to engaging with strategics depending on how close they are to competing against them. We just worked on a sale and the strategic was a well-known, larger competitor of the firm’s. The owner didn’t want to open his books to the competitor. At the end of the day it’s about what’s important to the seller and figuring out the best way to get the seller what they want.

Axial: What should business owners be on the lookout for?

Geoff: Every founder should be really tuned into the team that will be working with them. It’s very easy to get swayed by one person. That person can be very convincing in a meeting. But owners need to ask how that person will be involved in the process and who else they will be working with. One of the most important people may be the vice president. You need a consistently strong team from top to bottom. We show our potential clients the entire team they will be working with so there are no surprises once we are engaged.