CEOs and CFOs of middle market companies regularly make important decisions to engage a variety of Professional Service Organizations (PSO) to perform necessary corporate, transactional and financial planning tasks.Â Yet, the engagement decision to hire a particular investment bank, wealth management advisor or consulting firm, is often made without examining whether the new PSO has an existing working relationship with the referring PSO already providing services to the company.Â Â Â
Asking for a referral from an existing professional service provider is the common way that most CEOs and CFOs begin their search for another service provider with a distinct specialization.Â Â However, if the referral discussion focuses on a particular PSO firmâ€™s isolated attributes, this does not necessarily correlate with the prospective PSO firm being a â€œgood fitâ€ within the context of all the PSOs serving the company.Â
The effectiveness of the PSO vetting process (the so-called â€œbeauty contestâ€) can be improved by inquiring whether the referring firm (e.g., an accounting firm) regularly conducts business with the referred firm (e.g., an investment bank).Â If a formal Strategic Alliance is found to exist between the PSO firms, then established methods and processes help ensure that the PSOs provide complimentary resources, expertise and advice, in order to deliver collaborative solutions to the client company.Â Â
In the investment banking industry, a notable number of national and international firms (including Corporate Finance Associates) have formalized the process of making cross-referrals with other PSOs under written Strategic Alliance Agreements.Â As such, these investment banks are better qualified and positioned to deliver a coordinated package of services to their clients.Â Astute CEOs and CFOs leverage these alliance relationships for their companyâ€™s benefit.Â Â Â Â Â Â Â Â Â Â Â
Therefore, when hiring, or requesting a referral from, an investment bank, the CEO or CFO often asks:Â â€œDoes your investment bank have an alliance with the following service providers?â€:
- Wealth Management / Financial & Retirement Planning Firms â€“ Investment banking firms specializing in business sales, mergers, acquisitions, and divestitures, have alliances with wealth managers providing estate planning, trust administrations, and who manage the money generated from a liquidity event.Â
- Other Investment Banks (with distinct specializations) â€“ M&A investment banks (such as Corporate Finance Associates) often have alliances with other investment banks specializing in corporate finance matters, or that conduct business in other countries.Â Â
- Consulting Firms â€“ Investment banks which have sets of bankers working in Industry Practice Groups, are typically well-coordinated with other management consultants, environmental consultants, and specialists in particular vertical industries where clients also focus their business.Â Â
- Law firms â€“ M&A investment banks have relationships with specialized lawyers and law firms that know how to prepare Purchase and Sale Agreements, including critical terms, such as representations, warranties, indemnifications and earn-outs.
- Accounting Firms â€“ Investment bankers have quality relationships with Big 4, regional and local accounting firms, which have experience in providing valuations, due diligence, post-merger integration and minimizing the adverse tax consequences of selling a business.
Corporate Finance Associates (CFA) is a M&A investment bank that regularly receives referrals from, and makes referrals to, itsâ€™ strategic alliance PSO partners.Â Importantly, CFAâ€™s clients are the key beneficiaries of the synergies which CFA enjoys with other PSOs.Â If you are interested in learning more about how alliances between CFA and other professional service organizations will result in collaborative benefits for your organization — let’s talk.