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Investment Banker Bake-off

Definition - What does Investment Banker Bake-off mean?

An investment banker bake-off is a competition held by a business owner to choose an investment banker for the sale of a business, refinancing or other M&A related services. The chosen investment banker will oversee the M&A process. This selection process is also known as a beauty contest.

Divestopedia explains Investment Banker Bake-off

The bake-off process begins when the organization that is looking to launch an IPO invites potential underwriters to tour their facility to get a fair idea of the nature of the business and its operations. Later, the organization invites bids from interested bankers. From the bids, the organization will choose that investment banker who is deemed to have the right skills, experience, knowledge and budget.

While submitting bids, the investment banker will provide information pertaining to past deals, relationships with existing industry partners, and extent of knowledge. This process can be competitive and intense, depending on the value of the company that is entering the M&A process. The investment banker also engages in a lot of background work as they try to research more about their competitors and their bids. This process also helps the organization that is planning to enter into the process of selling their business.

The formal presentation by the investment banker to the seller will include information on how they would handle the sale process. The presentation detailing the appropriate approach must include discussions about the following:

  • An estimated range of value of the company to be sold;
  • The experience of the deal team that will execute the transaction and their roles in the process;
  • The firm’s qualifications and details of other similar transactions that they have conducted;
  • How they would position the company, including their perception of the seller’s competitive advantages;
  • How they would go about marketing the company and sourcing prospective buyers;
  • Who they believe the best prospective buyers would be;
  • What possible obstacles they foresee in the sale process; and
  • A summary of their fee structure for engagement.
Sellers should also ask for and follow up on references for each investment bank. Request references from transactions that were successful, but also from one that failed. Based on these references, the formal presentation, and assessment of the evaluation criteria previously noted, select the best qualified firm to handle your M&A process.

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