Investment Banking in the Disrupted Climate of COVID-19
By John Kunschner
There have been tech booms and busts, 9/11, bank meltdowns, IPO window shut downs, political uncertainties, and other disruptions, but certainly this COVID-19 ordeal we are all living through now is like nothing else. Whole industries have been halted (airlines, retailers, restaurants, movie chains, etc.) are forever changed, while other sectors (specifically ecommerce, digital engagement and video conferencing & remote services) have seen an uplift in demand equivalent to 10 years of growth in 4 months. This all has been set against the backdrop of the most bizarre political climate and election year any of us can remember. Uncertainty is rampant, companies don’t know whether to raise equity, shore up with debt, look to sell now or delay until 2021, or just batten down the hatches and look to survive the year. Certain IPOs have been wildly successful, while others have suffered mightily and the resurgence of the “SPAC” has been fervent though unsettling in a “bubble” kind of way. And unfortunately, we really don’t have a good idea of when life & business will return to normal, and what the “new” normal will look like.
As someone who advises companies on their strategic goals and outcomes, it’s certainly been an interesting and challenging dynamic. But what has become very clear is that companies (especially those in the growth stage) are expecting an increasingly wide array of services and specialized value-add from Investment Bankers and Advisors, and there is a heightened desire to see as much “optionality” and creativity in the potential outcomes as possible. It’s not enough for a banker to be able to run a process and deliver a singular outcome – whether M&A, debt financing, or equity financing. There’s a clear need for the banker to deliver a tailored and highly personalized approach for each client, providing a clear path for the optimal outcome, but also a constant eye for contingency plans and alternative paths / deals, or even to just read the market, build the right senior level relationships to drive business outcomes in the near term, and plant seeds for a future transaction. Advisors who fail to deliver these tailored approaches, strategic optionality, and long-term relationships for each and every client will be severely challenged during and post-COVID-19.
When I first joined Landmark Ventures back in 2009, we were transitioning from a family-office style fund and business development firm into a three-pronged dealmaking platform (Investment Banking, Business Development Advisory and Events) set on delivering value and strategic outcomes for every client, while building a massive and highly engaged network. Transitioning from larger Investment Banks, I found myself energized by the prospect of delivering growth stage entrepreneurs with the highest level of expertise, market knowledge and personal/trusted advice and being able to focus on clients we firmly believed in.
Over the years, Landmark has invested heavily to create a tailored and deeply sector focused approach to each advisory assignment. Leveraging our collective knowledge and partnering with companies we enjoy working with has enabled our team to be successful. Our decades of experience across M&A, debt advisory, and equity financing, as well as our deep focus across specific tech verticals (such as Industrial IoT, eCommerce, Enterprise Tech and MarTech) has allowed us to streamline and optimize the dealmaking process while integrating “relationship capital” with global buyers, investors and business leaders to drive results. We also remain unique in offering certain clients a pathway for combined business development exposure to drive their pipelines and an investment banking path to yield strategic transaction options, coupled with a best in class event platform that taps a large and loyal network to generate high level interactions and relationships.
COVID-19 has disrupted nearly every aspect of life, and the Investment Banking community has been far from immune. Faced with shifting headwinds, all advisory firms were forced to assess their role across the innovation economy and take a hard look at the value-added services they are able to provide for clients. We were no different. Early on in the pandemic, Landmark anticipated the disruptions to financing processes, and the difficulties companies would face as they managed the uncertainty of the current markets. Landmark strategically pivoted to adjust our business model to better serve the needs of our clients, while preserving value and ensuring continued momentum. Simply put – Operators of businesses needed to focus on just that; operating their business through the storms of disruption caused by COVID.
It’s fairly obvious that large firms, for all the advantages they may have, aren’t able to pivot and adapt as quickly or efficiently or focus as deeply on certain verticals as specialized boutiques such as Landmark Ventures. This has proven an advantage during this global pandemic as well as in prior market disruptions. Our collective expertise was developed over years of deal experience, operating experience and relationship building across our core focus areas within the innovation economy. Recognizing the disruptions caused by unforeseen events such as COVID, adjusting our processes, and working closely with our clients on a daily basis to ensure their options remain plentiful, are all of the traits that embody the “ground up” mentality on which Landmark’s advisory services were built.
So, the question arises: What attributes should companies look for in their investment banking advisors, and what should advisors do to adapt in these trying times?
Some of these strategies (in my own view) are as follows:
Knowing your industry segment(s) inside and out: Sure, there are plenty of other advisors who focus on “technology” – But what does that really mean, and what sets them apart from the hundreds (if not thousands) of other “tech-oriented advisors”? When looking for an advisor, you have to examine where their historical success has originated and whether they really understand the dynamics of your business & market. Taking Landmark for an example, our focus has and always will be across the innovation and data-driven technology economy, and that’s not limited to our Investment Banking platform. Rather it’s the cultural thread that runs through every offering and service our business units provide. Knowing your industry inside and out means more than just knowing the valuation multiples associated with it. It means taking information and coupling it with the nuanced trends of the industry, the direction it’s going, and the challenges the space will face. It also means knowing the players in the space – the up and comers to watch, the incumbents, the strategic value-add investors, and the aggressive acquirers.
Companies across the innovation economy will continue to look for investment bankers with specific sector specialization, deep relationships, and creative, multi-level execution abilities that boutique platforms such as Landmark can offer.
Take the ecommerce sector for example – obviously COVID has dramatically changed the ongoing shift from retail to ecommerce, but recognizing that trend isn’t enough to be successful and provide value for clients. Deep experience in the trenches, and the core level of understanding of the sentiments and mentality of the key players is critical. Well before the pandemic, Landmark focused on the areas of retail & ecommerce by focusing on digital engagement, brand management & protection, data analytics, optimization tools, etc. and working with and closing deals with numerous clients. That experience and knowledge is now paying dividends for our current clients in the Amazon & ecommerce verticals – as we have the relationships, knowledge of preferences and insider views of how the buyers and investors are thinking about the sector.
Proactive Due Diligence: “Doing your homework” is often a cliche term. While widely used, it’s often taken at face value, and the true meaning is lost. The best advisors will properly screen a client to ensure they are ready to survive the gauntlet of the process, and guide you through the steps of having your corporate overview fully refined, your diligence materials fully prepared, and materials/answers at the ready for any and all potential diligence requests. Using our “homework” example – it’s not enough to do your homework if you’re doing it the night before it’s due. You need to anticipate the questions, feedback and pushback you’re inevitably going to receive in any process and have a strategy and plan in place to answer those. Doing so requires a deep level of market knowledge and transactional experience to proactively identify the tough questions that will be asked and how to best handle them. You’re not just doing your homework – you’re preparing for the test.
Developing Trusted & Substantial Relationships: No one person (or firm for that matter) can claim to know everything, or everyone. To be successful driving innovation and subsequently delivering outcomes for your clients – you have to know where to look and who to turn to, including how to engage with various contacts and roles across the org chart to achieve your goals.
These adjustments have taken several forms and have helped us to further solidify our role as a trusted advisor through a client’s full lifecycle, not just when there is a clear outcome at hand. We directed more of our focus on strategic M&A and did so in sectors that were able to demonstrate a resilience to or even benefit from the shift to remote / digital / online given COVID.
One example of this is in the area of Amazon & ecommerce, where the rapid uplift in consumer behavior to buy online has driven a wave of agency, brand management, software and analytics businesses who fill a key gap & skill set for larger strategic consolidators. This trend has led to several closings and numerous LOIs for our clients in the Amazon & ecommerce ecosystems.
We also were forced to get creative and agile in helping companies in other segments through their fund-raising processes, with a focus on promoting business development & partner outcomes as a precursor to “checking the box” on diligence to close the round. Disruptions in our client’s pipelines for software & analytics tools into Oil & Gas, Enterprise, and Retail, caused deals to push out and a rethinking of the type of value-add investor who can help them shore up and develop new business vs. acting solely as a funder. We have definitely spent more time developing new partner, channel and direct customer relationships in the path towards investment outcomes in the current environment.
On the debt side, we have helped numerous companies restructure or enhance their balance sheet strength in the current markets, as lenders are sitting on ample cash and are willing to get more creative, if you know where to look.
Our agility and scale has helped make such adjustments faster, and we have seen larger investment banking platforms find it more challenging in the new environment. There are a few great articles from Refinitiv, Deloitte, and PitchBook about the changes to the world of investment banking and advisory services that have taken place since the start of the pandemic.
In building Landmark’s three-pronged (IB, BD & Events) platform from the ground up, relationships have clearly served as a pillar of our success. We have worked very hard to ensure that we share a joint mission of fully surrounding a target buyer, investor, customer in a way that we can articulate what we are offering at the right levels, but also ensure we understand the internal processes, politics and priorities to enable a decision to be made. This helps us not only close transactions, but realize when we should preserve our time and resources because the proper dynamics are not in place.
Our Investment Banking, Business Development and Event platforms are intimately linked, so that we have the ability to support clients for connecting across the org charts of larger customers, buyers and investors and see the benefits of a wholistic approach to relationship building. The ability to call upon friends across the industry for opinions, introductions or potential outcomes is a critical component for driving outcomes and gaining exclusive access.
COVID has only highlighted the importance of these personal relationships, as while contacts are more accessible online, they are being forced to prioritize even more so than ever, where they spend their time. In the early months of the pandemic, as financing & M&A slowed and valuations came into question, the relationships fostered by Landmark were critical for our success in securing strategic outcomes for our clients.
In summary, since COVID-19 hit, the investment banking industry has been impacted dramatically. As the world begins the process of returning to a new normal – the changes that have come about in the investment banking industry likely are here to stay. Companies across the innovation economy will continue to look for investment bankers with specific sector specialization, deep relationships, and creative, multi-level execution abilities that boutique platforms such as Landmark can offer. For investment banks, the ability to quickly think outside of the box, redefine established processes, and embrace a shift into new and emerging arenas will be critical for their success.
We clearly plan to be part of that….