MERGERS / ACQUISITIONS
Investing time upfront
Technology has positively impacted the investment banking space … project management and financial planning software has increased the efficiency and accuracy of financial models and integration plans .
Rachel Wender serves as Managing Director for TAG Financial , a boutique investment banking firm that specializes in the insurance sector . She has 13 years of insurance distribution operational experience , which includes buy-side merger and acquisition services , financial planning , and KPI reporting
When I joined the brokerage industry , I quickly learned about Informal cases . We worked with the advisor to understand the client ’ s needs and how insurance fit their broader financial plan . From there , we gathered medical and financial information and worked with our carrier partners for prospective underwriting offers .
Once submitted , the Informal cases took fewer days to place in force compared to traditional formal cases because of the investment of time at the beginning . An informal case and the role of a brokerage agency is a good analogy to the process of selling a business and the role of an investment bank .
Reality check A business sale or new partnership should be based on the most accurate annual EBITDA and have realistic terms for future performance . If revenue and expenses are not reviewed in detail and correctly reflected in the pro-forma financials , the owner ( s ) will likely lose out on valuation or have unrealistic performance goals .
This review process is so important because brokerage companies experience peaks and valleys of business throughout any given calendar year . These are the result of regulatory changes , missed paramedical appointments , a delay in medical records , uncertain tax environments , client vacations , carrier processing times , and many other variables . Businesses also experience staff changes or non-recurring expenses that impact month-to-month financials .
An investment banking firm will gather key documents like historical financials , tax returns , pending business , production numbers and distribution metrics . They will calculate a detailed pro-forma EBITDA and work with the owner ( s ) to determine what structure and terms set the business and the employees up for success and growth .
Choosing the right partner
The collected documents are used to create a business and financial summary for potential partners or investors to review and submit an indication of interest . The investment bank and the owner ( s ) carefully consider who the right partner is based on the goals of the owner ( s ). The banker leads due diligence and facilitates the legal agreement process , both of which typically include a third party . The detailed analysis and document gathering done upfront saves a tremendous amount of time and money throughout both of these steps and helps to eliminate additional requests and questions . Most importantly , using a banker allows the owner ( s ) to stay focused on their business instead of being distracted by the process .
Technology has positively impacted the investment banking space as well . Every meeting , if desired , can be held virtually . This saves time , travel expense , and allows prospective partners to meet as many times as they need to feel comfortable . Project management and financial planning software has increased the efficiency and accuracy of financial models and integration plans .
If you are interested in exploring the market for a partnership or sale , I encourage you to engage with a banker and invest in time upfront before going to a potential partner . The right banker helps a business owner receive the best valuation for their business , have the smoothest process with fewer distractions and ideal terms .
20 Perspectives Q3 2022