Strategic Management & The Investment Banker
Investment Bankers & Strategic Alternatives
Investment bankers identify the business opportunities that can generate the most attractive equity valuations and implement strategic plans to capitalize on those prospects. Determine strategic alternatives with management after discussing market (m&a, financing, value chain of industry, where ROA is coming from, what the equity markets are rewarding with higher multiple)
Then model the strategic alternatives in excel
involving an investment bank in an organization’s strategic planning process
When the time is right to execute on a strategic or financial transaction, an investment bank serves as a strong advocate for the client during the transaction marketing process.
An investment bank can help shape a company’s strategic plan
Using feedback from strategic and financial investors, a firm can direct its efforts to exploring business opportunities that are viewed favorably by the investment community and strategic investors. This approach to long range strategic planning can yield significant valuation gains over time.
allow a firm to sell opportunistically when the market is robust and, conversely, buy when the market experiences softness. Without an investment bank’s input into a firm’s strategic plans, the likelihood of mis-timing the market and underperforming increases greatly.
Senior executives should make contact with their chosen senior investment banker at least once a quarter. Discussion topics during this update session may include operational developments and strategic initiatives, financial results, and market intelligence on the strategic wish list as well as broader investment objectives. Ideally, conducting this discussion in advance of any board meetings will ensure that a company is fully apprised of any new developments in the marketplace and can develop strategies that incorporate them.
Conducting an annual review of the firm’s strategic alternatives with an investment bank can yield new insights. By reviewing a firm’s strategic alternatives with respect to capital raising, partnership opportunities, and shareholder liquidity options, the company can chart a course for the long term. With the feedback from this review as a backdrop, a firm can kick-off its internal strategic planning process and create a framework for optimizing the company’s resources and opportunities for the coming year.
Strategic alternatives pitch. Student teams develop a bank-quality strategic alternatives pitch and deliver their recommendations to the CFO or head of strategy of a firm.
The breakdown of your index into separate indices for subsector allows you to build your value chain for the industry and highlight what the equity markets are rewarding, where ROA is coming from.
Evaluating Strategic Alternatives
Most companies, particularly well-managed businesses, have multiple strategic options available for both liquidity and growth. Evaluating Strategic Alternatives (ESA) is a formal review, analysis, and decision-making process that guides owners in assessing their financial and strategic options. The ESA process helps owners clarify and prioritize their personal and business objectives based on their company’s strategic direction, financial characteristics, and shareholder liquidity preferences.
Whether an owner’s goal is to expand the business, or to pursue a value-optimizing exit strategy, our investment banking team’s ESA assessment provides an objective, market-based valuation, as well as the options to achieve the value, and the implications of each option for the owner. The output from an ESA assessment includes a framework for strategic and operational decision-making; alignment between the owner’s long-term business objectives and the needs of the management team and shareholders; optimization of wealth transfer between shareholders; and coordinated tax structuring and exit planning strategies.
Essentially, investment bankers determine the valuation of the company under a number of strategic alternatives using comp companies, precedent transactions, DCF, LBO analysis and Merger analysis. The investment bank is usually asked by a company or pitches the prospect of reviewing strategic alternatives for the company.
The first step is to determine valuation (football field) under different scenarios including as is, change in capital structure, and sale to a strategic or financial buyer. The max valuation is then communicated as a recommendation to the Board of Directors of the company. The investment banker then recommends a process to be run by the investment bank in order to execute on the strategic alternative.