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Investment Banking University > Blog > Strategic Management & The Investment Banker

Strategic Management & The Investment Banker

  • September 29, 2019
  • Posted by: admin
  • Category: Blog
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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.

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