Selling your business is a momentous decision, often the culmination of years of hard work and dedication. While you’re an expert at operating your company, navigating the complexities of a business sale can be unfamiliar territory. Here’s where investment banks come in. These M&A experts bring extensive industry experience and a proven process to maximize the value of your business and ensure a smooth, successful transaction. From formulating a strategic and tailored market approach that uniquely fits your situation, to preparing marketing materials to managing the entire M&A process, a good investment banker helps secure the best terms and achieve a higher sale price for your business.
Mitigating the Risks of a DIY M&A Transaction
Some business owners contemplate handling the sale of a business themselves or choosing a less experienced professional to manage their sales process. However, going solo or choosing a professional who isn’t closing deals on a daily basis can expose your business to risks and missed opportunities. Here’s how choosing the right investment banker may provide you with an advantage:
1) Ensuring Confidentiality During the Sale Process
An almost universal concern of business owners contemplating a sale transaction is how to keep the news of a potential sale and release of sensitive data confidential. A well run process by an investment banker is designed to maintain confidentiality from start to finish. Interactions related to the transaction are done so under non-disclosure agreements and conversations are only had with key executives on the buyer side who understand and appreciate the implications of breaching confidentiality. Data availability is staged throughout the process to ensure only the top buyers get access to the more sensitive data. Interactions with employees and customers are done so under strict direction and in the later stages of the process. This keeps those who need to know in the know and alleviates concerns related to employees, customers or competitors learning of the sale prior to you making the announcement.
2) Creating Competitive Bidding to Maximize Sale Value
Selling your business is likely one of the largest liquidity events of your lifetime. Most business owners’ objectives typically center around achieving maximum value in the sale price while also finding the “right” buyer that will be the best fit for their company and employees. An experienced investment banker will create a competitive market for your business so you will have multiple offers to simultaneously consider and negotiate. On your own, securing multiple, compelling offers from strategic buyers and private equity firms can be a significant challenge.
3) Maintaining Business Operations During the Sale Process
It is key that your company runs as usual during the transaction process to maximize valuation. An investment banker will manage all aspects of the outreach and due diligence process while you continue to lead your management teams, grow your customer base, and enhance your capabilities. If you are selling your business yourself, you may be stretched thin during the deal process and lose sight of your day-to-day operations and growth goals.
4) Accessing a Network of Serious Buyers
Investment bankers are in direct communication with capable buyers in all industries and geographies (U.S. and global) as part of their daily routine. Working with an investment banker allows you immediate access to the serious and sophisticated buyers in your sector to streamline the selling process. M&A Advisors have broad buyer networks, including financial buyers, strategic buyers, and private equity firms, increases the likelihood of a competitive process and a successful closing.
Understanding Investment Bank Compensation:
Investment banks are typically compensated through a combination of two fees:
- Retainer: This upfront fee covers a portion of the bank’s initial costs.
- Success Fee: This larger fee, typically a percentage of the final sale price, incentivizes the bank to achieve the best possible outcome for you.
It’s important for business owners to review the fee structure and clear up any questions. A clear understanding of the fees involved will help ensure there are no surprises down the road.
The Takeaway:
Selling your business is a complex process, and attempting to navigate it alone can be risky. Investment banks offer extensive experience and expertise to maximize value and minimize disruption. They create a competitive environment with qualified buyers, ensure confidentiality, and connect you with serious investors, ultimately helping you achieve a successful sale.