Why the Standard Banking Process Doesn’t Work For Mid-Market Growth Companies

Peter Kirwan
Peter Kirwan

Our assumption that middle-market companies need a different kind of banker than larger companies ended up ringing true during the sale process.

Before hiring a bank, as a management team, we outlined our criteria for selection.  We wanted to find a bank that was “right sized” for our business.  Specifically, we wanted to find a banking partner who focused on companies our size—someone who would see us as a priority in their own pipeline.  Most of the banks we initially spoke with did a good job of selling us on the fact that we would be important to them, but after digging into their transaction histories and speaking to their references, the right fit just wasn’t there.  Our assumption that middle-market companies need a different kind of banker than larger companies ended up ringing true during these conversations.  Here are a few of the specific things we learned:

Most banks sell companies through auction processes

It turns out that most banks use very similar processes to market companies.  They prepare background materials on the company, put together a list of potential buyers, then send an email to these buyers which outlines the process going forward.  The reason they approach the process this way is that it’s straightforward, and can be managed by junior staff.  Generally the senior bankers step in at the end of the process to negotiate a few details after the attorneys have done the majority of the work.

Rigid auction processes are limiting, and often preclude potential buyers

In our case, we ended up selling to a company that wasn’t initially on our radar screen.  If we had limited our outreach to the initial buyers list that we put together with the bankers, we would never have found our eventual buyer.  Additionally, the process ended up taking longer than we had anticipated, and if we had kept to our initial timeline, we would have missed certain buyers and likely sold at a lower price.  In the end, it was good to get to know the buyer over a period of time—forming the relationship with them couldn’t have been short-circuited.

Junior bankers generally do most of the work

Every bank we spoke with marketed the “senior level attention” we were going to receive throughout the process.  We had heard from other entrepreneurs that the senior guy who pitches the deal isn’t involved until the final stages of the transaction.  We found in our own process that many of the issues that came up required the attention of the senior banker.  Arbor told us that the process would at times feel like “proctology,” and in retrospect that was an understatement.  Had we gone with a traditional bank where senior bankers sell, and junior bankers execute, it isn’t likely that we would have received the attention we needed.

In the end we hired Arbor Advisors because their approach addressed the issues listed above.

  • First, they customized the transaction process to our needs and helped us build a relationship with the buyer throughout the process. While price was an important issue, it wasn’t the only issue, and a traditional auction would have likely led us down a different path.
  • Second, Arbor was flexible, both in terms of the timeline, and the management of the buyers we spoke with. Neustar came late to the game, and Arbor helped us get them caught up to the point where they eventually became the logical partner.
  • Because the senior team at Arbor had worked as operators in technology companies, they were able to anticipate many of the issues that came up throughout the process, and this helped tremendously.

There were many bumps along the road in our sale process, and we were fortunate to have chosen to partner with Arbor after a very deliberate selection process.