Hi my Cousins and welcome to my new channel: My Cousin Works in Finance.
In these videos, I want to get you familiar with Investment Banking, because at first glance, it can seem a little blurry or complex, but actually, it’s not that hard.
And if you had a cousin, or a family member working in Finance, here is everything they would tell you.
Before explaining what a Mergers and Acquisitions banker does on a daily basis, I think it would be just better to explain what a Mergers and Acquisitions banker is.
And for that, I’m going to take a very simple analogy.
I always say I’m a kind of a real estate agent, but for companies. Let me explain.
Let’s say you want to sell your car, your 2017 Toyota Yaris.
For that, you need to follow four main steps. The first one, you need to write an ad, where you will describe the overall condition of your car, such as the mileage, the year, the color. And also you need to take some nice pictures.
Second, you need to define a price. So you can look up online, maybe on Craigslist, for cars that are around you, with the same overall condition.
Third, you need to attract potential buyers by posting this ad on one or several websites.
And fourth, you need to meet with these potential buyers to negotiate and agree on a price.
And for that, you have two options. You can do everything by yourself, and keep a hundred percent of the sale proceeds.
Or you can get the support from a professional: a car dealer or broker.
That’s gonna be less time consuming for you, but in exchange you’re gonna have to give up maybe 20 or 40% of the selling price.
Now, let’s take a second example. Let’s say you want to sell an apartment: a two bedroom, two bathroom in San Francisco.
You need to follow the same four steps.
However, you’re going to see, it’s getting a little more complicated.
You still need to write an ad, and to define a price.
However, unless your neighbor just sold their apartment, it’s gonna be hard to find an apartment with the same size, and in the same location, that just got sold.
So you may rely on a professional, a real estate agent, to get a valuation.
Third, you still need to attract potential buyers, and fourth, to negotiate to agree on a price.
However, a real estate acquisition is a very important one, so your potential buyers will be very picky, and they’re gonna ask a ton of questions.
And the negotiations, they can take ages.
So while you can run the process by yourself, and keep a hundred percent of the selling price, you’re more likely to get the support from a professional and give up maybe five percent of the price.
Now, let’s take a third and last example. As you can expect a company. Let’s say you are the proud owner of a fancy bakery chain in California.
You still need to follow the same four steps. However, you’re gonna see, it’s getting even more complicated.
Just to write the ad, you’re not just selling an asset: a car or an apartment.
You’re selling a brand, stores, factories, contracts, and a financial performance.
That means your ad will be between 20 and 150 pages, just to describe the main elements of your company.
Second, to define a price, it’s gonna be hard because you’re not gonna find a bakery chain, with the same size and same profitability, that just got sold.
So you’re more likely to rely on a professional that has access to more data points, and that can run a financial model.
Third, you need to attract potential buyers, and here it’s gonna be a totally different story. Your car, or your apartment, they don’t understand they are being sold. They don’t care. They are not going to fall apart in front of the buyers, just to embarrass you. Even if some cars could do actually.
But for a company, it’s a very different story because your management, your employees, your clients, they can be worried and distracted by your sale process. And your suppliers and clients, they can try to take advantage of this process, to negotiate better prices with you.
So while you can still make this process public, you’re more likely to keep it under the radar. That means you need to target and to contact the potential buyers by yourself. I think for your main competitors that could be relevant buyers, it’s okay you probably know them. However, you may not have access to the CFO of Starbucks that could be a relevant buyer, nor the main financial investors.
And for the negotiations, the potential buyers will request a lot of documents, and the discussions could be very technical. Let’s say your company lost money in the past. The future buyer may receive a tax benefit because of your losses, and you must be compensated for that. But first, you need to know that this exists, that you can calculate the amount, and convince the potential buyer to pay you that amount.
That’s why banker could be helpful.
I think you got my point. While you can run the process by yourself, you’re more likely to get the support from a Mergers and Acquisitions banker, and give up maybe three percent of the selling price.
And that’s why I say I’m a kind of a real estate agent but for companies.
I hope that was clear. If you enjoyed this video, you can like and subscribe.
Thanks for watching, and I’ll see you in the next one. Take care.