Part 6 - Middle Market Musings -- Questions We Get Asked
Q. Is it useful to hire an industry expert when seeking an investment bank to help sell a business?
A. While this has become a trend among family-owned and middle market companies, we have a somewhat counter intuitive approach which suggests an industry insider could be more of a negative than positive. First, it’s important to remember that the business or industry expertise already exists in the room with the seller. They are in the business, they know the industry and they know it well. The next thing to remember is that an investment banker who is focused on one industry, may be a little too cozy with industry doyennes. If the banker’s bread is buttered with the big players in the industry, a smaller middle market company may get the short end of the stick. We don’t want to be cozy with buyers and we don’t want to be their friends. The seller can be their friend, we will do the difficult negotiating and deal making. Our approach, in fact, is to play the buyers off each other to see who will deliver the best price. Because we aren’t an industry insider, we never worry about insulting anybody and how that might affect the next deal; we are only focused on this deal.
Q. Can the Chicago transaction market withstand the onslaught of bad news from the city and the state?
A. Concern about the financial crises surrounding the state and the city is present, but it has not created much negativity in the perception of Chicago by deal makers. They see it as a place with lots of business activity, lots of building, lots of middle market companies and lots of opportunity. Investors like the city because traditionally it has avoided the extremes seen elsewhere– such as oil and gas in Texas and real estate in New York -- and the accompanying boom and bust cycles. As the heart of the middle market, Chicago is the place to do bread and butter deals. Some people think it is the greatest place to do business. After all, it has a fantastic location, with easily accessed direct flights to anywhere, a central business district that is easy to negotiate, and people who are straightforward, friendly and inclusive.
Q. What do you need to know to succeed with middle market clients?
A. Middle markets companies and the large public corporate market are two different worlds. The middle market is hands on with smaller staffs, meaning everybody has to understand the company’s entire picture; there’s little room for silos with middle market companies. The bureaucracy of large corporations – meetings, procedures, political gamesmanship, and memos – are unlikely to exist in the middle market companies where everyone is more intimately involved with the company’s operation and success. Working with middle market companies, which rarely have the luxury of brands that sell themselves, requires flexibility, creativity and the ability to outwit your large competitors.
Write back with some questions you may have about the middle market. I will answer them in future blogs.