It’s a challenge navigating through the dealmaking pipeline in investment banking, especially when closing deals. To make the dealmaking journey more efficient, the Finalis community has uncovered some valuable insights, practices, and operations.
In this blog post we will cover best practices that Finalis bankers apply to their businesses and that you can find useful, whether you're an independent dealmaker, part of a small team, or have a large team.
Key Takeaways
- Understanding the deal lifecycle: recognize the stages from deal origination to execution and management for closing deals effectively.
- Investment banking competition: stay ahead by adopting proactive strategies, leveraging technology, and differentiating from competitors.
- The importance of deal velocity: quick deal closure is crucial for competitive advantage; avoid factors like stalled deals, incorrect information, and lack of collaboration that slow down processes.
- Challenges when closing deals: bottlenecks like stalled deals and communication gaps can hinder successful deal closure and lead to missed opportunities. Identify and avoid them.
- Closing deals requires understanding your deal lifecycle
For those venturing into the world of dealmaking in investment banking, it's important to identify the general stages they may encounter before closing a deal. Knowing what each of these stages entails will be useful to be prepared to tackle each step with the right tools and team. Here are the most common deal lifecycle stages:
- Deal origination. The process commences with the identification of a potential deal, commonly referred to as deal sourcing. This stage marks the outset of a comprehensive journey through the company's internal evaluation. During this first stage, the investment team focuses on making a careful selection and evaluation of potential deals, which requires a deep understanding of the market and the industry in which the company operates.
- Due diligence. This stage is critical for ensuring that the company is making a sound investment decision, as it involves a detailed analysis of the target company's financials, operations, and management team. The due diligence process can take several weeks or even months, depending on the complexity of the deal and the size of the target company. This meticulous process ultimately paves the way for potential investment opportunities.
- Negotiation and structuring of the deal. This stage involves the development of a term sheet, which outlines the key terms and conditions of the transaction, as well as the negotiation of the final purchase agreement.
- Execution of the transaction. After the deal has been negotiated and structured, the company moves on to the next stage of the lifecycle, which involves the transfer of ownership of the target company and the integration of the business into the acquiring company's existing operations.
- Management and monitoring of the investment. This stage involves the ongoing evaluation of the investment's performance and the implementation of strategies to maximize its value.
- Be aware of high competition in investment banking
Closing deals is not straightforward. The investment banking landscape is characterized by intense competition, as firms vie for clients and lucrative deals. Loyalty plays a pivotal role, with non-switching clients often receiving lower fees and better analyst ratings. To stay competitive, modern firms are adopting proactive deal origination strategies, leveraging technology for efficient sourcing, and constantly evolving their approaches to stay ahead of the curve.
Adaptation to the latest data, tools, and processes is crucial, as failure to do so risks firms being outpaced by more agile competitors. In this environment, differentiation is key and needs a proper deal management solution, requiring a focus on strong client relationships, innovative technologies, and continuous strategic evolution.
- When closing deals, avoid deal velocity-slowing factors
Closing deals requires a good deal velocity. Let´s dive into this concept to make it clear.
Deal velocity, a measure of how quickly a business is able to close deals and generate revenue, is key for firms that want to act on promising deals before their competitors. Competitive advantage is directly related with management efficiency across the entire deal lifecycle . Along this trajectory, investors, managing partners, and LPs are presented with numerous opportunities to evaluate deal flow, fostering the establishment and cultivation of connections with new and valuable contacts as the dealmaking process progresses.
The closing of deals is neither quick nor effective without a solid dealmaking pipeline and that is where Finalis can help. If you are not sure which processes and tools are needed to improve your deal velocity, get in touch with our team.
Successful dealmakers rely on a well-structured, finely-tuned dealmaking pipeline to facilitate faster deal velocity. To achieve this, they dedicate efforts to avoid hurdles in their processes:
- Stalled deals.. When new deals get stalled in the pipeline, it creates a bottleneck. For example, if you have a deal stuck in due diligence, your resources won’t be available to perform due diligence on your next deal. As delays continue to occur within your dealmaking pipeline, they frequently cascade, so one delayed deal becomes four or five. These delays increase the chances of a deal falling through, and qualified leads may move on to another option.
- Incorrect information. Not having the correct information about leads could make dealmakers chase prospects that are less than ideal. Wasting time nurturing leads that ultimately turn out to be bad fits for your portfolio slows down your deal velocity.
- Lack of collaboration and communications processes: deal stages can also be delayed or incorrectly completed due to miscommunication. For example, a team member might miss a message regarding key financial documents they need to collect for an audit, holding back your valuation. Poor collaboration and communication can slow down every stage of a private capital deal.
How can Finalis Help
Visualize the seamless optimization of your processes and operations, eliminating the necessity for frequent time-consuming redesigning. Access a daily updated database of global open deals, meticulously categorized by industries, deal types, and expertise, fortified by expert quality checks within the sector. Rely on established communication processes and direct channels to connect with over 500 seasoned bankers and potential partners across diverse market segments and deal types, available for collaboration on specific deals.
Finalis offers comprehensive solutions to elevate your deal velocity and enhance success in closing deals, overseeing your dealmaking pipeline from inception to completion. Contact us to learn how we can help.
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