Why Acquisitive CEOs Must Network with Bankers

For business owners, working with an investment banker typically comes to mind when preparing to raise capital or exit their companies. If they are not looking to sell in the near future, they are often quick to turn bankers away when they call. As one CEO who is seeking a strategic acquisition said, “bankers call me every day and I tell them we’re not looking to sell and hang up the phone.”

What most business owners do not realize, however, is that turning down these conversations may lead to missed opportunities. Particularly for CEOs who are considering inorganic growth strategies and looking for acquisitions that will make a strategic fit, building relationships and networking with bankers can be an invaluable exercise.

Here are three reasons why engaging with investment bankers well before or while still considering the next strategic move, especially if that might be an acquisition, is essential for CEOs of growing companies.

Getting Your Company on Buyer Lists

Relationships with investment bankers are critical to getting in front of other companies looking to sell. Bankers are constantly bringing deals to market (that’s why they keep calling to ask if you’re looking to sell) and are always looking for strategic buyers who might be interested in the deals they are representing. Think about what would happen if it was your company in the selling position. In hiring a banker to help you find a strategic buyer for your company, his first order of business would be to put together a list of companies to buy you out. As a strategic acquirer, it’s important that bankers have you on that list.

The next time a banker calls, instead of saying you’re not looking to sell and hanging up, say you are open to seeking out acquisition targets. He could be representing a deal that fits what you are looking for and the only way to know is to ask. Even if he doesn’t have the right deal now, he could in the future, and by maintaining a relationship you ensure that you see the deal first.

If a banker knows exactly what type of deal you’re looking for, they’ll go into the market and look for it specifically. Knowing they have a buyer lined up can motivate them to spend time looking for the perfect deal. Some bankers will want a retainer for this kind of service, which you can politely decline. The fact remains that if they find a deal that fits your criteria, they will bring it to you. The more bankers you have working for you in this capacity, the stronger your long-term deal flow will be. Particularly for companies without a corporate development team, this is a great way to ensure regular, inbound deal flow.

Educational Value

Bankers can be an extremely valuable source of information and education, particularly those who’ve represented and advised companies in your industry, size range and with similar goals. While CEOs are the ultimate experts on their company and the goings on in their industry, they often lack the critical M&A expertise that is essential for identifying the best strategies for growth. Bankers come to serve as the right hand resource to CEOs who are for the first time dipping their toe into private capital transactions.

While it is true that bankers won’t offer their services for free, they spend years building relationships with CEOs (to keep their own pipeline of clients strong) and will provide conversational tidbits and anecdotal expertise that you won’t be able to get anywhere else. Even if you are years away from a transaction, the more conversations you can have, the better prepared you will be when the time comes to pursue a deal.

Preparing For a Future Exit

Though not every company owner is actively shopping his company, looking to take on capital, or acquire smaller companies for growth, succession planning is essential. Exiting your business is inevitable and even if that time is in the distant future, the more relationships you can build with bankers over the years, the better educated and prepared you will be not only to enter into a sale process, but to hire the right banker to represent you when the time comes. Over the years spent and relationships built, you will come to know the right questions to ask, recognize strong reputations when you see them and likely be familiar with the fee structures and successes of bankers you’ve encountered so you can choose the right partner. It is never too early to build relationships with advisors who will ultimately advise on most important deal of your life — the sale of your company. Creating trust between an investment banker and a business owner is necessary for a successful transaction and takes time to build, why rush it?

Just as bankers have a pipeline of CEOs for future business; you should have a pipeline of bankers so that when the time does come to hire one, you have options. The last thing a CEO wants to feel is pressured into hiring a banker under duress. If unforeseen circumstances require you to sell your business before the expected timeframe, you could be forced to hire the first banker you meet just to get the process started. Alternatively, if you’ve spent the previous five years building relationships with many unique firms, you will feel more comfortable with your options.

Networking with investment bankers is not just for companies looking to sell or raise capital. Acquisitive CEOs need to spend time with bankers as well – it will pay off in the long run.