Relationships reign in the private equity industry. This is undoubtedly true for investment bankers who are likely to get repeat customers if they do a good job. Most private equity firms say the most important characteristic of selecting a sell-side advisor is having a successful existing or past relationship with that advisor, according to a recent survey of Buyouts readers.
The survey was conducted via email earlier this month, with a majority of respondents describing themselves as one of the key decision makers at their firms. Overall, 88% of respondents said they consider their relationship with their investment bank of the upmost importance. Last year when Buyouts conducted this survey an investment bank’s reputation in the marketplace was most important to private equity firms. While an i-bank’s reputation is still important to private equity firms, it didn’t rank as high on the list as the relationship did.
“When we pick an investment bank to sell one of our portfolio companies, the box’ for the reputation question has already been checked.We would not consider an i-bank with a suspect reputation.There are obviously a number of reasons we pick a certain i-banker for a given transaction, including the following: relationship, reputation, industry experience, quality of investment memorandums, closed deal success rate, how they manage an on-going process, our perception of their enthusiasm for the deal, dedication of senior level people to the transaction, how quickly they can get to the market, etc.,” says Mark Jones, a partner with River Associates Investments.
The survey also revealed that most private equity firms like having the option of stapled financing, although it isn’t deemed as a necessity. This certainly bodes well for firms like Houlihan Lokey Howard and Zukin, which was just bought by Orix. The deal positions the firms to give private equity clients advisory services along with financing. Approximately, 60% of respondents say stapled financing is nice to have, but won’t break a deal.
“It’s rare that financial buyers even use the lending that we’ve gift wrapped,” said Jack Helms, a managing director at Goldsmith, Agio, Helms. “They use our due diligence work and the lenders that we worked with to lever their relationships, to meet the same terms and win… As when the smoke clears, they end up using their own lender with underwriting terms that are the same as the ones that the lenders we line up were proposing.”
Additionally, what seems to be a mainstay of importance for private equity firms is getting senior-level attention. Almost 80% said that was important to them. The good news is that 60% of respondents feel they are getting senior-level attention from their i-banks. “We currently have three companies in the market with three different investment banks.What typically impresses us most are the firms that have been able to effectively institutionalize a great process as part of their culture. By that I mean that any senior level person at that firm can be equally successful in representing our interests in the marketplace,” said Jones.
Another PE pro agreed. “Investment banks would be foolish not to give the private equity firms the right level attention. There’s a lot of capital available and plenty of i-banks that have deals for them to see.”