Survey Shows 8 Ways Investment Bankers Create Value for Sellers
Some business owners may balk at the idea of of paying an investment banker to help them sell their companies. But a recent survey of owners who have been through the process shows that sellers believe that their investment bankers added tremendous value in the process.
Jackim Woods & Co surveyed 25 business owners who sold their businesses with the help of an investment banker for between $2 million and $50 million between 2008 and 2016. One-hundred percent of those surveyed said they did not regret hiring an investment banker and over 70% said they added “significant” value in the process.
The 8 Functions of an Investment Banker
The survey also explored what aspects of the investment banker’s role were most helpful from the seller’s point of view by asking to rank the following eight functions from most to least important.
1. Managing the M&A Process
Investment bankers are usually the quarterbacks for the sales process. They are the ones who are responsible for creating a competitive transaction process, coordinating all of the different aspects of the transaction, working with the seller’s other advisors, and keeping the transaction moving toward a closing.
2. Coaching and Educating the Owner
The vast majority of business owners have never sold a company before. Experienced investment bankers, on the other hand, have managed hundreds of transactions and can share that that experience with their clients. This is particularly important when it comes to determining the value of the client’s company, and what is market based with respect to seller financing, reps & warranties and due diligence.
3. Identifying and Contacting Buyers
Investment bankers supplement the business owners’ knowledge of their markets and potential buyers by tapping into their professional contacts and networks, buyer databases, and expertise to identify and connect with interested buyers.
4. Negotiating the Deal
Investment bankers typically advise the seller on negotiating positions and take the lead in negotiating the purchase price and terms and other major considerations in the transaction.
5. Enhancing the Seller’s Credibility
Engaging an experienced investment banker demonstrates to buyers that the seller is committed to closing a transaction and that since there is professional representation, there is a greater likelihood of a successful closing.
6. Preparing and Positioning the Company for Sale
Sellers are rarely prepared for the huge amount of information buyers will ask for when considering an acquisition. Experienced investment bankers can help business owners get prepared by helping to create detailed financial models and projections, offering materials, data rooms, and management presentations to make the information sharing as seamless and easy as possible, while maintaining confidentiality at the same time.
7. Structuring the Transaction
Transactions can involve various forms of consideration, such as cash, equity, seller notes, earnouts, and other forms of contingent consideration. Investment bankers can structure each transaction specifically to address the needs and desires of both sellers and buyers, thus providing creative solutions for potentially conflicting transaction objectives.
8. Enabling Owners to Focus on Running their Business
The M&A process typically last for 6-9 months and can be very distracting if a business owner is trying to run his or her company and sell it at the same time. By taking over the sales process, investment banks enable business owners to focus on operating the business rather than managing the transaction process. This is essential because a dip in earnings or margins during the sales process could cost the seller hundreds of thousands of dollars in purchase price when the deal closes.
As one former Jackim Woods & Co. client noted, “Unless you have substantial M&A experience, a broad network of buyers, and a lot of free time, you should work with with a good investment banker. You may be able to get the deal done on your own, but you will probably invest a lot of time in the process, leave a lot of money on the table and end up with a higher-risk transaction in terms of seller financing, reps & warranties, and indemnifications.”
If you are thinking of selling your business or would like to explore your options, please give Rich Jackim a call at 224-513-5142.
