Industry Specialist vs. Process Specialist
We elected to hire a process specialist rather than an industry specialist. Most banks were just selling introductions and relationships. Arbor was the only bank that had a differentiated approach to the process of selling companies.
After receiving significant inbound interest, we knew that we wanted to proactively explore what the rest of the market had to offer. We heard other entrepreneurs’ horror stories about the complexities of trying to run a sale process while operating a company, so we quickly came to realize that in order to both run a formal sale process and operate a fast-growing technology company, we needed to hire a banker.
Our Criteria for Selecting a Banker
My co-founder and I thought a lot about what criteria we should use to hire a banker. The first things that came to mind were industry expertise, prior transaction experience in our space, and senior-level attention. Naturally, we thought about hiring a Digital Media or FinTech specialist who could open up doors to the most likely acquirers. We wanted to hire the banker that had the rolodex to make the right introductions. We interviewed several of the banks that fit the above criteria and came to realize that none of them had a differentiated approach. They were all just selling introductions and relationships. During our discussions with bankers, several other reasons not to hire an industry specialist surfaced:
Conflict of Interest: Banks that specialize within a certain industry vertical inherently have a conflict of interest. Industry specialists tend to represent both buyers and sellers, with an emphasis on representing investors and buyers. We realized that banks with this type of model would be less likely to obtain the full value for our company in a process because they would be showing our company to their highest fee-paying clients on the buy-side, their long-term clients. Specialists didn’t have the incentive to “go to war” for us to extract the maximum possible value for our company. You wouldn’t hire a real estate broker that is also representing the other side of the transaction in the sale of your home. Why treat your company differently?
Lack of Creativity: Banks that specialize generally include the same set of acquirers each time they take a company to market. These banks have relationships with a set of buyers who depend on them for their debt, equity, and M&A advice. We already knew who our most likely acquirers were, and it became apparent to us that we wanted a bank who focused on outcomes, rather than just introductions. We wanted a bank that would think outside of the box, and bring different prospective buyers to the table. This was very important as we ultimately sold to a company that we initially never thought would buy us.
The Direction We Went
We elected to hire a process specialist rather than an industry specialist. Arbor was the only bank that had a differentiated approach to selling companies. The bankers at Arbor are former entrepreneurs and operators, and this background proved to be invaluable during the transaction process. They had participated in their own financings and liquidity events and applied what they learned as entrepreneurs to their model. As former technology entrepreneurs, they were able to add significant value by packaging and framing our company effectively to buyers. In the end, what mattered was the outcome, and we were happy that we hired a negotiation expert rather than an industry specialist.