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Whatever the period and the economic situation, using the services of an investment bank (or a merger-acquisition firm) is generally an asset for companies wishing to structure their growth plan, whether acts to raise funds to move from the status of SME to that of ETI, to carry out one or more structuring acquisition project(s), in France and abroad, etc. These companies are responsible for finding the best structures to acquire, but also supporting them in their search for financing thanks to a detailed knowledge of the various potential investors. Currently, private equity funds undeniably have a lot of money to invest, but whether you want to turn to them or to other sources of financing, you have to present a project based on a solid business plan… a document that investment banks can calibrate to current market requirements. The services and expertise of investment banks are accessible to companies of all sizes, including the smallest ones, with the promise of saving time, and therefore money.
They are called investment banks or mergers and acquisitions consulting firms. These companies play a perfectly identical role: supporting companies in their financing and development strategy. “We do the same job. The difference in terminology is often explained by a distinct status”, confirms Pierpaolo Carpinelli, managing partner of Transaction R&Co, the team specializing in the small and mid-cap segment of Rothschild & Co. And by the desire of certain structures to make their mission more easily understood, who therefore prefer the term merger-acquisition firm to that of investment bank. “It’s a fairly complex business that we try to present in a simple and intelligible way to interlocutors who are not familiar with it”, confirms Damien Gros, CEO of Auris Finance. Because the scope of the actions of these companies is indeed quite wide. “It’s a multi-faceted profession”, recognizes Stéphane Aubin, president of Arcéane. But if there is one that they do not exercise, contrary to what the word “bank” may suggest, is to grant loans to their customers.
An intermediary role to find targets and buyers
One of the main missions of investment banks is to intervene in plans to buy or sell a company. “Like a real estate agency”, likes to compare Jean-François Lécole, CEO and founder of Katalyse, a consulting firm in strategy and business development. A metaphor that Stéphane Aubin also uses: “as for exceptional real estate, when you buy a high-value property, here a company, it is better to get closer to professionals than to take care of it alone”.
“An investment bank will be responsible for identifying interesting companies to acquire based on precise specifications, contacting them, negotiating with them…”
Especially since this external growth operation can mark a turning point in the life of a structure by making it acquire markets, skills and employees. In this context, an investment bank will be responsible for identifying interesting companies to acquire based on precise specifications, contacting them, negotiating with them… An intermediary role that allows the manager of the client company to focus on operations and the management of its structure. “He thus entrusts his development project to a company which knows what it must do and which has already done it. It saves him a tremendous amount of time and, undoubtedly, money”, stresses the president of Arcéane.
The investment bank also intervenes when a manager wishes to sell his company. She then immerses herself in her universe in order to understand it well, then identifies and compares candidate buyers so that her client derives maximum value from the sale. The latter can obviously take care of it alone, “but an investment bank provides him with diversified offers in terms of price and type of project, and therefore real expertise. We also have the perspective necessary to negotiate, which is not necessarily the case for the manager, especially when he is the founder of the company”, explains Damien Gros. According to him, whether the investment bank conducts a buy or sell transaction, the client company wins. “Through our service, we bring her comfort and the guarantee of obtaining more favorable conditions than if she led the discussions herself,” he says.
Valuable help in fundraising
If the merchant bank does not lend money to its customers, it can help them find it. Especially during the acquisition phase of a third-party company, in order to prevent them from devoting all their cash to this operation. Thanks to its in-depth knowledge of the financial players, the investment bank will refine the business model of the client company, then go knock on the doors of banks to request a loan, or even mobilize investment funds. She can also assist her clients in raising funds. “We identify potential financiers and we put them in competition so that in the end, the entrepreneur certainly has a little less capital in his company, but more cash”, explains Pierpaolo Carpinelli. And the mechanism also works with the lifting of debts.
“If the investment bank does not lend money to its customers, it can help them find it”
Moreover, the investment bank’s support is not limited to these periods when everything is looking good. “We are there when our clients go through more difficult situations and they need restructuring [réorganisation en vue d’atteindre une nouvelle configuration pour remédier à une situation compliquée, ndlr]”, slips the managing partner of Transaction R&Co. In short, in good times as in bad times, which can sometimes alternate.
References and sector expertise above all
Some investment banks combine all these different hats while others focus on a few missions in particular. Choosing among them depends primarily on the task to be assigned. “The decision is not easy because there is a full panel of stakeholders. It nevertheless becomes so if the client company has properly targeted its needs”, considers Pierpaolo Carpinelli. Supporting examples: “A manager who wishes to sell himself to a German industrialist has every interest in turning to an investment bank with French connections, but also an office and contacts in Germany. For a deeptech company that is very complicated to understand, it is better to call on an investment bank specializing in tech who will know how to identify it and will have a certain ease in determining its final value, potential investors, etc.”.
“Choosing among them depends primarily on the task at hand. “The decision is not easy because there is a full panel of stakeholders. However, it becomes so if the client company has properly targeted its needs”
Hence the importance of looking at the references and previous experiences of investment banks before committing to one of them. “I always recommend going to companies that know their business well. Otherwise, they risk making analytical errors and wasting a lot of time in discussions with unserious candidates,” advises Damien Gros. The managing director of Auris Finance even recommends that managers of very small businesses trust investment banks to carry out their operations. “They often limit themselves to their historical advice, which is their chartered accountant and their business lawyer. However, in my opinion, they are not sufficiently equipped and do not have the knowledge of the sector that we can have, and which is a real added value”, he concludes.
Founded in 2005, Largillière Finance is an independent investment bank specializing in small and mid-cap operations. She carries out an average of two to three operations per month ranging from 5 to 150 million euros, on behalf of growing SMEs and ETIs. These operations relate to company disposals and acquisitions as well as fundraising, strategic consulting and financial engineering. “Three quarters of our operations are carried out in the regions because we like to be in the field. We will always visit the sites of our customers upstream in order to meet the leaders and discover the installations of our customers. In our view, it is important to know the structures for which we operate, and to have a clear vision of their assets”, highlights Paul Bougnoux, co-founder and president of the company. An in-depth knowledge of the client’s situation which allows “tailor-made support until the outcome of the best possible operation”. “It’s also not exclusively the one that pays the most,” slips the president.
Regional anchoring is in any case fully claimed by the investment bank. Proof of this is the opening in 2021 of an office in Lyon, in addition to those already present in Paris, Brussels and Geneva. “This new location has allowed us to get even closer to the territories. Even if many financial players are located in Paris, the economic reality takes place in the regions”, underlines Paul Bougnoux, specifying however that a quarter of the operations of Largillière Finance are nevertheless carried out internationally. The firm, which currently has 20 employees, aims to expand its workforce to 25 by the end of 2022, then to around 30 within a year.
If the investment bank is responsible for identifying the structures to buy so that its client company can grow, it is generally not the bank who decides on this strategy. But rather the company itself, which for this could be supported by a consulting firm in strategy and development. The Katalyse firm has been carrying out this mission with SMEs and ETIs since 1990. For example, it was contacted by the company Tra-C Industrie for its development project. The latter, with a hundred employees, is specialized in the design and manufacture of complex parts with high added value, particularly in the field of Defense. “We carried out their strategic reflection and identified that it could develop by moving towards aeronautics. Since specific certifications that take a long time to obtain are required to practice in this field, external growth then proved to be particularly appropriate,” recalls François Lécole, CEO and founder of Katalyse. The firm even found the ideal company, an SME with around thirty employees and with the famous certifications. “It’s a good example of smoothly conducted external growth because it fulfilled the three essential conditions for success: it was strategically relevant, the target was well chosen and the integration process was properly carried out”, adds the ‘expert. The strategy and business development consulting firm does not only intervene during an external growth project. In general, it can be requested as soon as a manager has to implement one or more major strategic orientations that commit his structure and his functioning in the short and long term. An outside perspective and support that a company can do without, but which generally saves time – and money.
Source: PwC Global M&A Industry Trends study, February 2022