December 2022 CEO Minute by Matt Plooster, CEO—Independent investment banks have become a rarity these days.
Many have been acquired by financial institutions, CPA firms and wealth advisors. In other cases, corporations like these have started their own investment banking divisions as a way to increase profitability and expand their product lines for cross-selling to customers. Meanwhile the old-school, high-profile bulge bracket investment banks remain less entrepreneurial and flexible, and more like utilities than trusted advisors in today’s market.
The upshot of these industry trends is that it has become very difficult to find independent and unconflicted advice. And in the dynamic market we are now in, the value of independent and unconflicted advice has never been higher. Company stakeholders looking to raise capital or undergo M&A activity often end up with advisors who are more beholden to the bottom line of a large institution or private equity firm than to the outcome of their transaction. Without governance over the integrity of advice, the stakeholders can lose tens of millions in the deal and not even know it.
Full disclosure: As CEO of Bridgepoint, one of the remaining independent boutique investment banks in the nation, I have strong opinions on this topic. Our team remains passionate about our core values. Providing unconflicted advice, the right advice. Having checks and balances around the deal table. All for the ultimate good of the client. Every transaction we conduct includes other advisors who also are independent (legal counsel, CPAs, wealth managers, etc.). Beyond that deal, we are not contracted or obligated to work with any of these entities, so their profits are never our concern. Our sole focus is giving our clients the right advice that will result in the best transaction for them, and them alone.
I think this gives us a unique perspective on what questions private company founders should ask when seeking a truly independent and unconflicted investment bank.
- Find out how much of the investment bank’s experience is conflicted by working for private equity firms (the likely counterparty in your deal) versus working for private companies.
- Ask the advisor who makes the ultimate decisions for their investment bank, and how they think about providing advice.
- Inquire about service line depth and experience to confirm its legitimacy as an investment bank.
- See if there’s a culture of turnover or one of retention by asking how long the team has worked together and how many deals they’ve done collectively.
The answers to these questions matter, and here’s why: Private company owners have one chance to sell their company and achieve their monetary goals. The outcome of that transaction will shape their financial futures, probably for generations to come, as well as the legacy of their company and its people. They deserve a client-focused partner who shares their values and has their best interests in mind. On the other hand, if their advisor is conflicted and tied into a large financial institution or private equity firm, that advisor isn’t going to negotiate against his or her interests with your counterparty or teammates providing other services. But an independent and unconflicted investment bank like Bridgepoint will – and we’ll push hard to increase the valuation by a significant amount, which can mean millions of incremental dollars, cash in hand, for the ownership of your company.
While the industry trend has been toward acquisition and consolidation, I still believe independent investment banks are the future – growth and market share will inevitably flow to investment banks who aren’t beholden to conflicting forces, but can be trusted to add value.