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How to Build a Boutique Investment Bank

At Investment Banking University, we are often asked , “How to build a boutique investment bank?”, so we created a methodology for doing so consistent with that which built AltQuest Group (www.AltQuest.com), the middle market boutique investment bank. This methodology is known as the Boutique Investment Bank Methodology which goes as follows:

 

  1. Decide on IB product (M&A, capital-raising, growth advisory)
  2. Decide on size of market to cover (public co’s, middle market, lower middle market)
  3. Decide on industry coverage (AltQuest’s coverage is broken down between Healthcare, Manufacturing, Software, and Business Services)
  4. Break down industry into sub-verticals to cover
  5. Build indices for industry and sub-verticals made up of public co’s
  6. Utilize Coverage & Origination Methodology to advise targets on strategic alternatives
  7. Utilize Mandate/Target Matching Methodology to match strategic and financial buyers’ mandates to targets
  8. Gather financials, recast & IB deliverables (adjusted EBITDA, valuation, teaser, CIM, management presentation)
  9. Offer analysis
  10. Purchase agreement drafting/structuring
  11. Due diligence data room
  12. Closing & flow of funds

 

Decide on the industry/industries that you will cover, read/research the value themes/players/multiples in the industry on the following levels:

 

  1. Large cap
  2. Mid cap
  3. Small cap
  4. Middle market
  5. Lower middle market

 

Pick an initial vertical and sub-vertical to cover. With AltQuest Group, our initial coverage groups were the following:

 

  1. Manufacturing
  2. Software
  3. Business Services
  4. Healthcare

 

After choosing your coverage, the investment banker is then to build an index for each of the verticals and sub-verticals made up with the public comps. The AltQuest Group coverage is broken down in the following manner:

 

  1. Manufacturing
    1. Durable consumer
    2. Non-durable consumer
    3. Aerospace & defense
    4. Building products
    5. Industrial
    6. Medical
  2. Software
    1. Traditional software
    2. SAAS
    3. Internet
  3. Business Services
    1. Education & Training
    2. Business Process Outsourcing
    3. Facility Services and Industrial Services
    4. Human Resources
    5. Information Services
    6. Marketing Services
    7. Real Estate Services
    8. IT Services
    9. Specialty Consulting
  4. Healthcare
    1. Dental Product
    2. Dental Providers
    3. Medical Devices & Products
    4. Medical Product Distribution
    5. Specialty Providers
    6. Pharma Services
    7. Practice Management
    8. Provider Services
    9. Long Term & Behavioral Care

 

The indices for AltQuest Group look like the following:

 

  1. Manufacturing
    1. AltQuest Durable Consumer Index
      1. Newell Brands Inc. NYSE:NWL
      2. Whirlpool Corp. NYSE:WHR
  • Hanesbrands Inc. NYSE:HBI
  1. Gildan Activewear Inc. NYSE:GIL
  2. Brunswick Corporation NYSE:BC
  3. Tupperware Brands Corporation NYSE:TUP
  • G-III Apparel Group, Ltd. NasdaqGS:GIII
  • La-Z-Boy Incorporated NYSE:LZB
  1. Culp, Inc. NYSE:CFI
  2. Flexsteel Industries Inc. NasdaqGS:FLXS
  3. Johnson Outdoors Inc. NasdaqGS:JOUT
  • CSS Industries Inc. NYSE:CSS
  • Delta Apparel Inc. AMEX:DLA
  • Escalade Inc. NasdaqGM:ESCA
  1. Black Diamond, Inc. NasdaqGS:BDE
  1. AltQuest Non-Durable Consumer Index
    1. Colgate-Palmolive Co. NYSE:CL
    2. General Mills, Inc. NYSE:GIS
  • Campbell Soup Company NYSE:CPB
  1. The Clorox Company NYSE:CLX
  2. Church & Dwight Co. Inc. NYSE:CHD
  3. Coty Inc. NYSE:COTY
  • Edgewell Personal Care Company NYSE:EPC
  • Avon Products Inc. NYSE:AVP
  1. Inter Parfums Inc. NasdaqGS:IPAR
  1. AltQuest Aerospace & Defense Index
    1. Honeywell International Inc. NYSE:HON
    2. The Boeing Company NYSE:BA
  • General Dynamics Corporation NYSE:GD
  1. Airbus Group SE ENXTPA:AIR
  2. Mohawk Industries Inc. NYSE:MHK
  3. TransDigm Group Incorporated NYSE:TDG
  • Textron Inc. NYSE:TXT
  • Spirit AeroSystems Holdings, Inc. NYSE:SPR
  1. B/E Aerospace Inc. NasdaqGS:BEAV
  2. Bombardier Inc. TSX:BBD.B
  3. HEICO Corporation NYSE:HEI
  • Curtiss-Wright Corporation NYSE:CW
  • Esterline Technologies Corp. NYSE:ESL
  • Triumph Group, Inc. NYSE:TGI
  1. RBC Bearings Inc. NasdaqGS:ROLL
  • Aerojet Rocketdyne Holdings, Inc. NYSE:AJRD
  • Ducommun Inc. NYSE:DCO
  1. AltQuest Building Products Index
    1. Mohawk Industries Inc. NYSE:MHK
    2. USG Corporation NYSE:USG
  • Armstrong World Industries, Inc. NYSE:AWI
  1. Advanced Drainage Systems, Inc. NYSE:WMS
  2. Apogee Enterprises, Inc. NasdaqGS:APOG
  3. Builders FirstSource, Inc. NasdaqGS:BLDR
  • American Woodmark Corp. NasdaqGS:AMWD
  • Gibraltar Industries, Inc. NasdaqGS:ROCK
  1. Continental Building Products, Inc. NYSE:CBPX
  2. Insteel Industries Inc. NasdaqGS:IIIN
  3. Armstrong Flooring, Inc. NYSE:AFI
  1. AltQuest Industrial Index
    1. United Technologies Corporation NYSE:UTX
    2. Illinois Tool Works Inc. NYSE:ITW
  • Eaton Corporation plc NYSE:ETN
  1. Ingersoll-Rand Plc NYSE:IR
  2. Parker-Hannifin Corporation NYSE:PH
  3. Rockwell Automation Inc. NYSE:ROK
  • Crane Co. NYSE:CR
  • Hubbell Inc. NYSE:HUBB
  1. Colfax Corporation NYSE:CFX
  2. Barnes Group Inc. NYSE:B
  3. Actuant Corporation NYSE:ATU
  • Albany International Corp. NYSE:AIN
  • EnPro Industries, Inc. NYSE:NPO
  • Chart Industries Inc. NasdaqGS:GTLS
  1. Columbus McKinnon Corporation NasdaqGS:CMCO
  1. AltQuest Medical Index
    1. Medtronic plc NYSE:MDT
    2. DENTSPLY SIRONA Inc. NasdaqGS:XRAY
  • Hologic Inc. NasdaqGS:HOLX
  1. Abaxis, Inc. NasdaqGS:ABAX
  2. Analogic Corporation NasdaqGS:ALOG
  3. Integer Holdings Corporation NYSE:ITGR
  • AngioDynamics Inc. NasdaqGS:ANGO
  • Misonix, Inc. NasdaqGM:MSON
  1. Amedica Corporation NasdaqCM:AMDA
  2. Allied Healthcare Products Inc. NasdaqCM:AHPI
  1. Software
    1. AltQuest Traditional Software Index
    2. AltQuest SAAS Index
      1. 2U TWOU NasdaqGS
      2. Amber Road AMBR NYSE
  • Athenahealth ATHN NasdaqGS
  1. Bazaarvoice BV NasdaqGS
  2. Benefitfocus BNFT NasdaqGS
  3. Callidus Software CALD NasdaqGM
  • Castlight Health CSLT NYSE
  • ChannelAdvisors ECOM NYSE
  1. Cornerstone OnDemand CSOD NasdaqGS
  2. Covisint COVS NasdaqGS
  3. Ebix EBIX NasdaqGS
  • FireEye FEYE NasdaqGS
  • Fleetmatics FLTX NYSE
  • HortonWorks HDP NasdaqGS
  1. HubSpot HUBS NYSE
  • inContact SAAS NasdaqCM
  • IntraLinks Holdings IL NYSE
  • J2 Global JCOM NasdaqGS
  • Jive Software JIVE Nasdaq
  1. Live Person LPSN NasdaqGS
  • Marin Software MRIN NYSE
  • Medical Transcript MTBC NasdaqCM
  • Medidata Solutions MDSO Nasdaq
  • Netsuite N NYSE
  • New Relic NEWR NYSE
  • Paylocity Holding PCTY NasdaqGS
  • Q2 Holdings QTWO NYSE
  • Qualys QLYS NasdaqGS
  • RealPage RP Nasdaq
  • RingCentral RNG NYSE
  • Salesforce.com CRM NYSE
  • Service-now.com NOW NYSE
  • SPS Commerce SPSC NasdaqGS
  • Tableau Software DATA NYSE
  • Tangoe TNGO NasdaqGS
  • The Ultimate Software Group ULTI NasdaqGS
  • TrueCar TRUE NasdaqGS
  • Upland Software UPLD NasdaqGM
  • Veeva Systems VEEV NYSE
  1. AltQuest Internet Index
  1. 1-800-FLOWERS.com FLWS NasdaqGS
  2. 58.com WUBA NYSE
  • 8×8 EGHT NasdaqGS
  1. Akamai Technologies AKAM NasdaqGS
  2. Alibaba BABA NYSE
  3. Amazon.com AMZN NasdaqGS
  • Angie’s List ANGI NasdaqGS
  • Baidu.com BIDU NasdaqGS
  1. Bankrate RATE NYSE
  2. Bitauto Holdings BITA NYSE
  3. BlueNile NILE NasdaqGS
  • Brightcove BCOV NasdaqGS
  • BroadSoft BSFT NasdaqGS
  • Carbonite CARB NasdaqGS
  1. Care.com CRCM NYSE
  • ChangYou.com CYOU NasdaqGS
  • Chegg CHGG NYSE
  • Cimpress CMPR NasdaqGS
  • Coupons.com QUOT NYSE
  1. Criteo SA CRTO NasdaqGS
  • Ctrip CTRP NasdaqGS
  • DemandMedia DMD NYSE
  • eBay EBAY NasdaqGS
  • eHealth EHTH NasdaqGS
  • Everyday Health EVDY NYSE
  • Expedia EXPE NasdaqGS
  • Facebook FB NasdaqGS
  • GoDaddy GDDY NYSE
  • Google GOOG NasdaqGS
  • Groupon GRPN NasdaqGS
  • GrubHub GRUB NYSE
  • Harmonic HLIT NasdaqGS
  • Interactive Intelligence ININ NasdaqGS
  • LendingClub LC NYSE
  • LifeLock LOCK NYSE
  • Limelight Networks LLNW NasdaqGS
  • LinkedIn LNKD NYSE
  • Liquidity Services LQDT NasdaqGS
  • Mail.ru Group 61HE.L LSE
  1. MakeMyTrip MMYT NasdaqGS
  • MaxPoint Interactive MXPT NasdaqGM
  • Mercadolibre MELI NasdaqGS
  • Mitel Networks MITL NasdaqGS
  • Monster Worldwide MWW NYSE
  • NCSoft 036570.KS KSE
  • Netease NTES NasdaqGS
  • Netflix NFLX NasdaqGS
  • Overstock.com OSTK NasdaqGS
  • Pandora P NYSE
  1. PetMed Express PETS NasdaqGS
  2. Priceline PCLN NasdaqGS
  • QuinStreet QNST NasdaqGS
  • Renren RENN NYSE
  • Rocket Fuel FUEL NasdaqGS
  1. SeaChange International SEAC NasdaqGS
  • ShoreTel SHOR NasdaqGS
  • Shutterfly SFLY NasdaqGS
  • Shutterstock SSTK NYSE
  • SINA SINA NasdaqGS
  1. Sohu.com SOHU
  • Sonus Networks SONS NasdaqGS
  • Stamps.com STMP NasdaqGS
  • Synacor SYNC NasdaqGS
  • Tencent Holdings NNN1.F
  • The Rubicon Project RUBI NYSE
  • TheStreet.com TST NasdaqGM
  • Travelzoo TZOO NasdaqGS
  • Lending Tree TREE NasdaqGS
  • Tremor TRMR NYSE
  • TripAdvisor TRIP NasdaqGS
  • TubeMogul TUBE NasdaqGS
  • Tucows TCX NasdaqCM
  • Twitter TWTR NYSE
  • VeriSign VRSN NasdaqGS
  • WebMD Health WBMD NasdaqGS
  • Wix.com WIX NasdaqGS
  • XO Group XOXO NYSE
  • Xunlei XNET NasdaqGS
  • Yahoo! YHOO NasdaqGS
  • Yandex YNDX NasdaqGS
  • Yelp YELP NYSE
  • YuMe YUME NYSE
  • YY YY NasdaqGS
  • Zillow Z NasdaqGS
  1. Business Services
    1. AltQuest Education & Training Index
      1. Graham Holdings Company NYSE:GHC
      2. GP Strategies Corp. NYSE:GPX
  • Pearson plc LSE:PSON
  1. John Wiley & Sons Inc. NYSE:JW.A
  2. Capella Education Co. NasdaqGS:CPLA
  3. Bridgepoint Education, Inc. NYSE:BPI
  • Strayer Education Inc. NasdaqGS:STRA
  • K12, Inc. NYSE:LRN
  1. DeVry Education Group Inc. NYSE:DV
  2. Career Education Corp. NasdaqGS:CECO
  1. AltQuest Business Process Outsourcing Index
    1. Wipro Ltd. BSE:507685
    2. Cognizant Technology Solutions Corporation NasdaqGS:CTSH
  • Sykes Enterprises, Incorporated NasdaqGS: SYKE
  1. Convergys Corporation NYSE: CVG
  2. West Corporation NasdaqGS:WSTC
  3. TeleTech Holdings Inc. NasdaqGS:TTEC
  • Virtusa Corporation NasdaqGS:VRTU
  • Unisys Corporation NYSE:UIS
  1. AltQuest Facility Services and Industrial Services Index
    1. Cintas Corporation NasdaqGS:CTAS
    2. ABM Industries Incorporated NYSE:ABM
  • SP Plus Corporation NasdaqGS:SP
  1. Aramark NYSE:ARMK
  2. Iron Mountain Incorporated NYSE:IRM
  3. UniFirst Corp. NYSE:UNF
  • FirstService Corporation TSX:FSV
  • Waste Management, Inc. NYSE:WM
  1. Republic Services, Inc. NYSE:RSG
  2. Waste Connections US, Inc. NYSE:WCN
  3. Stericycle, Inc. NasdaqGS:SRCL
  • US Ecology, Inc. NasdaqGS:ECOL
  • Casella Waste Systems Inc. NasdaqGS:CWS
  • Covanta Holding Corporation NYSE:CVA
  1. Clean Harbors, Inc. NYSE:CLH
  • United Rentals, Inc. NYSE:URI
  • H&E Equipment Services Inc. NasdaqGS:HEES
  • CECO Environmental Corp. NasdaqGS:CECE
  • Team, Inc. NYSE:TISI
  1. AltQuest Human Resources Index
    1. Robert Half International Inc. NYSE:RHI
    2. ManpowerGroup Inc. NYSE:MAN
  • WageWorks, Inc. NYSE:WAGE
  1. On Assignment Inc. NYSE:ASGN
  2. 51job Inc. NasdaqGS:JOBS
  3. Insperity, Inc. NYSE:NSP
  • TriNet Group, Inc. NYSE:TNET
  • Korn/Ferry International NYSE:KFY
  1. TrueBlue, Inc. NYSE:TBI
  2. Kelly Services, Inc. NasdaqGS:KELY.A
  3. Kforce Inc. NasdaqGS:KFRC
  • Automatic Data Processing, Inc. NasdaqGS:ADP
  • Heidrick & Struggles International Inc. NasdaqGS:HSII
  1. AltQuest Information Services Index
    1. Thomson Reuters Corporation TSX:TRI
    2. Acxiom Corporation NasdaqGS:ACXM
  • Gartner Inc. NYSE:IT
  1. Alliance Data Systems Corporation NYSE:ADS
  2. The Dun & Bradstreet Corporation NYSE:DNB
  3. comScore, Inc. NasdaqGS:SCOR
  • Fair Isaac Corporation NYSE:FICO
  • Experian plc LSE:EXPN
  1. Equifax Inc. NYSE:EFX
  2. The Advisory Board Company NasdaqGS:ABC
  3. Verisk Analytics, Inc. NasdaqGS:VRSK
  • CoreLogic, Inc. NYSE:CLGX
  • CoStar Group Inc. NasdaqGS:CSGP
  • FactSet Research Systems Inc. NYSE:FDS
  1. Moody’s Corporation NYSE:MCO
  • Forrester Research Inc. NasdaqGS:FORR
  • IHS Markit Ltd. NasdaqGS:INFO
  1. AltQuest Marketing Services Index
    1. WPP plc LSE:WPP
    2. Omnicom Group Inc. NYSE:OMC
  • Publicis Groupe SA ENXTPA:PUB
  1. The Interpublic Group of Companies, Inc. NYSE:IPG
  2. MDC Partners Inc. NasdaqGS:MDCA
  3. InnerWorkings Inc. NasdaqGS:INWK
  • Ipsos SA ENXTPA:IPS
  • UBM plc LSE:UBM
  1. AltQuest Real Estate Services Index
    1. CBRE Group, Inc. NYSE:CBG
    2. CoStar Group Inc. NAsdaqGS: CSGP
  • Jones Lang LaSalle Incorporated NYSE:JLL
  1. Realogy Holdings Corp. NYSE:RLGY
  2. SouFun Holdings Ltd. NYSE: SFUN
  3. NM Kennedy-Wilson Holdings, Inc. NYSE:KW
  • E-House (China) Holdings Limited NYSE:EJ
  • RE/MAX Holdings, Inc. NYSE:RMAX
  1. Altisource Portfolio Solutions S.A. NasdaqGS:ASPS
  1. AltQuest IT Services Index
    1. International Business Machines Corporation NYSE:IBM
    2. Accenture plc NYSE:ACN
  • Cognizant Technology Solutions Corporation NasdaqGS:CTSH
  1. CGI Group Inc. TSX:GIB.A
  2. Booz Allen Hamilton Holding Corporation NYSE:BAH
  3. Leidos Holdings, Inc. NYSE:LDOS
  • Teradata Corporation NYSE:TDC
  • EPAM Systems, Inc. NYSE:EPAM
  1. Interxion Holding NV NYSE:INXN
  2. CACI International Inc. NYSE:CACI
  3. ManTech International Corporation NasdaqGS:MAN
  • Virtusa Corporation NasdaqGS:VRTU
  • The Hackett Group, Inc. NasdaqGS:HCKT
  • Unisys Corporation NYSE:UIS
  1. ServiceSource International, Inc. NasdaqGS:SREV
  1. AltQuest Specialty Consulting Index
    1. CEB Inc. NYSE:CEB
    2. FTI Consulting, Inc. NYSE:FCN
  • Exponent Inc. NasdaqGS:EXPO
  1. The Advisory Board Company NasdaqGS:ABC
  2. Huron Consulting Group Inc. NasdaqGS:HUR
  3. ICF International Inc. NasdaqGS:ICFI
  • Navigant Consulting Inc. NYSE:NCI
  • Resources Connection, Inc. NasdaqGS:RECN
  1. CBIZ, Inc. NYSE:CBZ
  1. Healthcare
    1. AltQuest Dental Product Index
      1. Zimmer Biomet Holdings, Inc. NYSE:ZBH
      2. DENTSPLY SIRONA Inc. NasdaqGS:XRAY
  • Henry Schein, Inc. NasdaqGS:HSIC
  1. Align Technology Inc. NasdaqGS:ALGN
  2. Patterson Companies, Inc. NasdaqGS:PDCO
  3. Cantel Medical Corp. NYSE:CMN
  • BIOLASE, Inc. NasdaqCM:BIOL
  • Milestone Scientific Inc. AMEX:MLSS
  1. Pro-Dex Inc. NasdaqCM:PDEX
  1. AltQuest Dental Providers Index
    1. Birner Dental Management Service OTCPK:BDMS
  2. AltQuest Medical Devices & Products Index
    1. Medtronic plc NYSE:MDT
    2. Abbott Laboratories NYSE:ABT
  • Stryker Corporation NYSE:SYK
  1. Becton, Dickinson and Company NYSE:BDX
  2. Boston Scientific Corporation NYSE:BSX
  3. Baxter International Inc. NYSE:BAX
  • Intuitive Surgical, Inc. NasdaqGS:ISRG
  • Zimmer Biomet Holdings, Inc. NYSE:ZBH
  1. St. Jude Medical Inc. NYSE:STJ
  2. Edwards Lifesciences Corp. NYSE:EW
  3. CR Bard Inc. NYSE:BCR
  • ABIOMED, Inc. NasdaqGS:ABMD
  • Integra LifeSciences Holdings Corporation NasdaqGS:IART
  • Wright Medical Group N.V. NasdaqGS:WMGI
  1. Johnson & Johnson NYSE:JNJ
  1. AltQuest Medical Product Distribution Index
    1. Danaher Corp. NYSE:DHR
    2. Stryker Corporation NYSE:SYK
  • McKesson Corporation NYSE:MCK
  1. Cardinal Health, Inc. NYSE:CAH
  2. AmerisourceBergen Corporation NYSE:ABC
  3. Henry Schein, Inc. NasdaqGS:HSIC
  • Patterson Companies, Inc. NasdaqGS:PDCO
  • Owens & Minor Inc. NYSE:OMI
  1. PharMerica Corporation NYSE:PMC
  2. Aceto Corp. NASDAQGS:ACET
  1. AltQuest Specialty Providers Index
    1. Fresenius Medical Care AG & Co… NYSE:FMS
    2. DaVita HealthCare Partners Inc. NYSE:DVA
  • MEDNAX, Inc. NYSE:MD
  1. AmSurg Corp. NasdaqGS:AMSG
  2. HEALTHSOUTH Corp. NYSE:HLS
  3. Surgical Care Affiliates, Inc. NasdaqGS:SCAI
  • American Renal Associates Holdings, NYSE:ARA
  • Adeptus Health Inc. NYSE:ADPT
  1. LHC Group, Inc. NasdaqGS:LHCG
  2. AAC Holdings, Inc. NYSE:AAC
  1. AltQuest Pharma Services Index
    1. CVS Health Corporation NYSE:CVS
    2. Express Scripts Holding Company NASDAQGS:ESRX
  • Perrigo Company plc NYSE:PRGO
  1. Allscripts Healthcare Solutions, Inc. NasdaqGS:MDRX
  2. Magellan Health, Inc. NasdaqGS:MGLN
  1. AltQuest Practice Management Index
    1. WellCare Health Plans, Inc. NYSE:WCG
    2. HealthEquity, Inc. NasdaqGS:HQY
  • Team Health Holdings, Inc. NYSE:TMH
  1. AltQuest Provider Services Index
    1. Cerner Corporation NasdaqGS:CERN
    2. Healthcare Services Group Inc. NasdaqGS:HCSG
  • HMS Holdings Corp. NasdaqGS:HMSY
  1. The Advisory Board Company NasdaqGS:ABCO
  2. Omnicell, Inc. NasdaqGS:OMCL
  3. Evolent Health, Inc. NYSE:EVH
  • Providence Service Corp. NasdaqGS:PRSC
  1. AltQuest Long Term & Behavioral Care Index
    1. National HealthCare Corporation AMEX:NHC
    2. The Ensign Group, Inc. NasdaqGS:ENSG
  • Civitas Solutions, Inc. NYSE:CIVI
  1. Acadia Healthcare Company, Inc. NasdaqGS:ACHC
  2. SunLink Health Systems Inc. AMEX:SSY
  3. AAC Holdings, Inc. NYSE:AAC

 

The investment banker then spreads each public comp and the financial data feeds into the median and average for the vertical and sub-vertical which ultimately ends up in the research (industry report, newsletter), pitchbooks, and CIMs of the investment bank. For investment banks with an equity research department, financial statement models will be built for each public comp that is being covered and consensus EPS data taken from research reports will be used to establish the value of the public comp.

 

The investment banker ultimately uses the vertical index and sub-vertical index to perform proprietary research and develop industry reports and newsletters which will aid in coverage and ultimately origination. The research, which we will go into greater detail on later in the book focuses on vertical and sub-vertical trends in margins, multiples, and M&A.

 

After establishing one’s coverage and then building an index for the vertical and sub-vertical as well as establishing relationships with strategic and financial buyers within the vertical and sub-vertical, the investment banker may begin advising targets on their strategic alternatives using information gleaned from the vertical and sub-vertical indices. Regarding the vertical index and sub-vertical index, the investment banker ultimately tracks trends in:

 

Growth rates

 

Margins

 

Debt to Equity

 

Multiples

 

The investment banker takes the index and establishes tiers which turn into peer groups. This is why we pull public comps; to benchmark a target against the comps. By comparing a target’s level of performance to it’s peers and the industry in general the investment banker can determine when it is ideal to exit the business (when multiples are strong) and when it is not (when multiples are weak). This is how investment bankers advise on strategic alternatives.

 

How to Advise on Strategic Alternatives?

 

After establishing one’s coverage and then building an index for the vertical and sub-vertical as well as establishing relationships with strategic and financial buyers within the vertical and sub-vertical, the investment banker may begin advising targets on their strategic alternatives using information gleaned from the vertical and sub-vertical indices. Regarding the vertical index and sub-vertical index, the investment banker ultimately tracks trends in:

 

Growth rates

Margins

Debt to Equity

Multiples

 

The investment banker takes the index and establishes tiers which turn into peer groups. This is why we pull public comps; to benchmark a target against the comps. By comparing a target’s level of performance to it’s peers and the industry in general the investment banker can determine when it is ideal to exit the business (when multiples are strong) and when it is not (when multiples are weak). This is how investment bankers advise on strategic alternatives.

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