Strategic Management & the Investment Banker

Investment Bankers identify the business opportunities that can generate the high equity valuations and work to coauthor strategic plans with C-level executives in order to take advantage of those opportunities. Investment bankers first analyze strategic alternatives and then pitch them to management after discussing the current status of the market in regular quarterly market update meetings. The market review discusses the status of the M&A market in general, financing, value chain of the industry, where ROA is coming from in sub-sectors of the industry, and what the equity markets are currently rewarding with a higher multiple.

This process means that in some capacity the investment banker is getting involved in the strategic management process as led by the C-suite of the firm. Strategic alternatives include identifying when to sell opportunistically, when to get acquisitive, and identifying advantageous sources of financing. This helps the C-level avoid mistiming the market for large strategic actions taken by the firm.

The C-level should connect with their investment banker on a quarterly basis. The senior team can address strategic priorities with the investment banker and be briefed on strategic developments within the industry or sub-sectors. The banker keeps a pulse on the market and is a trusted advisor to the C-suite. When the banker identifies new developments relevant to the firm, the client and banker then work to coauthor strategies to deal with the new development.

Typically, the firm will meet with the banker for an annual review of strategic alternatives before its annual strategic planning process in order to incorporate the alternatives into planning if appropriate.

During the quarterly updates the banker uses their coverage indices broken down by sub-sector to identify where in the value chain the ROA is coming from and what the equity markets are rewarding with a higher multiple.

Essentially, investment bankers determine the valuation of the company under a number of strategic alternatives using comp companies, precedent transactions, DCF, LBO analysis and M&A analysis. The investment bank is usually asked by a company or pitches the prospect of reviewing strategic alternatives for the company. The investment banker then recommends a process to be run by the investment bank in order to execute on the strategic alternative.