Merchant bankers work with management and operating partners to enhance the ultimate enterprise value of a company over time. While investment bankers are financial advisors focused on specific near-term transactions, merchant bankers take a longer view that is more closely aligned with management’s goals and compensation.
Recognizing the importance of “getting it right the first time,” most company owners seek out professionals (marketing agents, operational consultants, IT consultants, commercial bankers, commercial realtors, accountants, and attorneys) whose expertise and experience can increase the viability and long-term value of their business.
The availability of professionals and their expertise is often in direct proportion to the size of the company and its financial resources. Market, legal and practical demands cause each of the above professionals to be focused on their services.
When emerging and underperforming companies struggle, it is rarely because of only one or two problems that these professionals can fix.
Companies generally struggle due to the cumulative effect of one or two internal problems combined with external, uncontrollable events.
Common examples of external events include industry transitions, loss/bankruptcy of key customers, economic downturns, loss of business partners, and aggressive competitor encroachment, to name only a few of the many possible challenges.
For example, commercial bankers probably have the broadest economic vision of any of the above professionals. Yet the role of commercial bankers is legally limited by the nature of their superior claims for payment (collateralized loans) and OCC-imposed requirements when a company is facing illiquidity.
Accountants and consultants probably have the best vision of how the problems can be fixed. Yet the fee-driven role of accountants and consultants is usually legally and/or market-limited due to their need for independence and/or financial risk avoidance.
Attorneys have the best vision for navigating and satisfying the legal process. Yet law firms are rarely staffed to conduct financial due diligence, perform strategic planning, review/restructure business processes, provide crisis management, or provide any other “hands-on” business expertise.
Even if accountants, consultants, and attorneys did provide it all, their services are tied to billable hours rather than the client’s success. None of the above professionals specialize in restructuring and financing emerging or underperforming companies in a “one-stop” turn-key fashion.