As CEOs and CFOs, you no doubt think long and hard about the investment bank with which you want to work. Most management teams consider which investment bankers can best help meet their company’s capital raising and strategic needs, as well as which bank’s sell-side analysts will provide quality research coverage of the company. However, it is also important to consider how impactful the bank’s institutional equity sales force is.
Whether you are already public or thinking of going public, you want to work with a sales force that has real influence in the investment community. Importantly, you want to engage a team that has solid, long-term relationships with those investors who will be buying your stock.
What makes the difference? Experience. Over the years, Wall Street has changed; industry consolidation and changing pay structures means that banks often cannot support a veteran sales force, particularly at the larger investment banks. What used to be a long-term, lucrative career in equity sales has become the victim of a business that is suffering from contracting margins; in other words, these positions are now filled with junior people to reduce costs. While bright and energetic, these newer, greener salespeople are more likely to be “order takers” in that they don’t have much influence on purchasing decisions as they often lack the seasoned opinion that a portfolio manager values.
Some firms have fought the trend and retained more entrepreneurial and seasoned sales professionals. These sales teams tend to have outstanding long-term relationships with the buy-side and long tenure with their employers. Also, some of these salespeople are still paid based on commission rather than salary plus bonus which makes them even more incentivized to sell stock.
So, how do you evaluate an investment bank’s sales force to determine their ability to help market your story? Ask about the number of accounts each sales team covers, the tenure of the salespeople and the types of accounts that they focus on. Also, look at the bank’s research coverage universe to determine if they have a number of companies that look like you – i.e. similar market cap, liquidity and financial profile. Another good resource to find ratings on sales force effectiveness are firms like McLagan or Greenwich Associates, which provide independent rankings of institutional sales teams.
Our advice: when evaluating the banks you choose to work with, create a mix of big and smaller banks. Long after you have gone public, you will still need quality salespeople to bring your company to the attention of potential investors. You can’t possibly meet with every account that might be a good long-term holder for your stock so finding the best megaphone to spread the word on your company is important.
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