DealMakers - Q1 2021 (May 2021)
Investment bankers must prioritise relationships to help their clients succeed in a post-COVID-19 world
by Warrick Haskell
When COVID-19 arrived in South Africa, one of the many impacts it had was to fundamentally alter the way investment bankers and advisers engaged with their clients. Gone are the regular face-to-face client visits by the advisory team; replaced by digital interactions, which sacrifice the personal feel of an onsite visit, but replace it with an immediacy that was previously unheard of, and a requirement for the investment banker to be ‘at hand’ 24/7.
Ironically, this remote operating model has had the positive impact of allowing advisers to become far more connected with their clients, and many have been expected by those clients to evolve beyond merely offering guidance on merger and acquisition matters, to providing a much broader advisory service that requires far more extensive expertise and insights.
This is certainly not a bad thing. In fact, it has opened doors for relationship building that many investment bankers may not previously have even considered. If, as we should, we accept that an effective investment banker is someone who is highly trusted by clients to provide strategic insights, demonstrate sincere care and thoughtful input, and take a wide-angle-lens view of that client’s business and required solutions, then the age of immediate digital engagement is something all investment bankers can, and should, embrace as an opportunity to significantly deepen their client relationships, and exponentially grow the value they add.
Given the nature of investment banking, and in particular M&A, the relationships formed are based on a significant amount of trust between both client and advisor to ensure the smooth implementation of a transaction. Without this trust, the client will never feel comfortable sharing the strategic information that the banker needs to provide appropriate advice and craft the ideal solution. It is for this very reason that, in most cases, the most successful banker-client relationships are also the oldest. Trust typically takes time to develop, and in the context of M&A, it involves the repeated successful implementation, or necessary exit, of transactions that gradually demonstrate the value and trustworthiness of the banker. With the exponential increase in opportunities to engage digitally with clients, this time requirement has reduced in certain circumstances, allowing bankers to now build stronger relationships in a shorter period of time.
The importance of going beyond merely facilitating M&A transactions to build such trust, and provide clients with peace of mind on a much broader scale, has been massively amplified over the past year as many business owners have experienced the types of challenges that they have never been required to face in the past. Such times of immense uncertainty for clients are, in fact, opportunities for investment bankers and advisers. They allow us to leverage the relationships we have, and our position as trusted business partners, to demonstrate that we have the best interests of our clients at heart and are committed to continuing our journey with them through the challenging times.
Right now, there are a number of very practical ways in which investment bankers can build even stronger client relationships by adding significant value. One of these is by providing practical guidance on appropriate gearing. Funding for any transaction requires the perfect balance between debt and equity. With the cost of funding being what it is at the moment, many clients are being tempted to increase the overall gearing quantum; but this comes with significant risk, and the effective investment banker needs to demonstrate their value by being the voice of reason in these scenarios.
And gearing is just one of the areas where sound advice can serve to build trust and deepen relationships. Others include assisting clients with hedging strategies, given the likelihood that interest rates will rise in future; providing input into stress testing and scenario planning for acquirers that may see a drop in earnings; and delivering analysis and due diligence guidance in situations where acquiring clients are concerned about the viability of a proposed transaction, resulting in fears about overall serviceability. These are just some of the many elements that, today, demand higher levels of care and attention than ever before – and investment bankers must play a key role in guiding their clients through all of them.
Ultimately, any investment banker is only as good as his or her client relationships. As we look ahead to a future that will undoubtedly be characterised by uncertainty for many years to come, the imperative to prioritise building and nurturing these client relationships becomes very clear; it is the only real way that we can make sure that we are the solutionist thinkers that our clients need to secure the future success and growth of their businesses.
Haskell is a Senior Associate in Advisory | Nedbank Corporate and Investment Bank.