Business owners may receive an offer from a buyer they respect or admire and seriously contemplate accepting the offer before considering their other options. While this approach may seem compelling, it is suboptimal from a value maximization standpoint and introduces risks of a failed transaction that can cause meaningful disruption to your business.
There are great ways to leverage an investment banking relationship even if you have a solid offer in hand.
Direct Negotiation and Transaction Management:
The first would be to simply partner with the investment banker to assess the offer on the table from a market valuation and terms standpoint. You may collectively determine that the offer is in fact market clearing and the buyer presenting the offer is highly experienced and qualified in M&A. If this is the case, it is still highly valuable to have an investment banker in your corner as you navigate such an important process for the first time. The investment banker can help position certain financial and growth aspects of your business accordingly, in order to maximize the negotiated deal points. Hiring an investment banker signals to the buyer that you have professional representation and will not be taken advantage of either in the initial negotiations or throughout the due diligence process, keeping leverage on your side rather than with the buyer. Finally, the investment banker will help manage the complex due diligence process and navigate any potential issues that could derail the momentum of the transaction.
Clear the Market:
In the event the offer in hand is deemed not to be up to market valuation levels, or in the event direct negotiations fall through, the investment banker can step in to run a process that will provide certainty that you are transacting on maximized terms with the optimal partner. This can be done keeping the original buyer at the table engaged and involved without the risk of losing the “bird in the hand”. The process will include the best strategic and financial buyers creating a competitive environment that produces multiple options for you to consider. The options presented give you certainty that you are getting the best deal available from the market at that point in time, alleviating any worries before, during or after the transaction about whether you are leaving significant money on the table. As importantly, the options presented in the competitive process give you immediate fall-back positions from the top bidder in the event, making sure you keep them honest and on track through the close of the transaction.
Imagine selling your house in a hot market, accepting the first offer, and missing out on a bidding war. An investment banker can orchestrate a similar scenario for your business. Here’s how hiring an investment banker, even with an offer on the table, can be a game-changer:
- Create a Competitive Landscape: They discreetly approach strategic and financial buyers, sparking a bidding war that drives up your company’s valuation. Multiple interested parties ensure you get the best possible price.
- Maximize Your Value: Investment bankers meticulously analyze your business, identifying its strengths and crafting a compelling narrative to showcase its future growth potential. Effectively telling your company’s story and highlighting growth opportunities can lead to a higher offer than what’s initially offered.
- Expertise in Negotiations: Negotiating the ins and outs of a business sale is a complex dance. Investment bankers have the experience and know-how to navigate complex terms, secure favorable deal structures, and advocate for your best interests.
- Confidentiality and Time Management: A business sale process can be a time-consuming distraction. An investment banker shields you from the back-and-forth negotiations and due diligence, allowing you to focus on your #1 priority – running your business.
“I was contemplating the decision of hiring an investment banker or moving forward with one of several direct offers from private equity groups. I engaged Nolan to lead a sale process which resulted in a valuation nearly 2X what the other groups had offered. The process was eye-opening from the standpoint of how many quality buyers exist and how competition impacted valuation while affording me the luxury of choosing the best buyer for my company. While I wasn’t entirely sure how the process would unfold since this was my first time selling a business, I couldn’t envision a better outcome,” said Marmon.
An investment banker is your trusted advisor throughout the sale of your business. They’ll develop a winning outreach strategy, guide you through negotiations and diligence, and, most importantly, ensure you achieve the best possible outcome.
The Takeaway
Don’t stop at your first offer. Even a seemingly good offer might undervalue your company’s future potential. An effective investment banker can be the difference between a good deal and a great one. Their expertise and network can unlock a higher sale price, favorable terms for your family and employees, and a better partner for your company’s future.