Should You Engage an Investment Banker?

Short Answer:
A good investment banker will enhance your opportunity for a successful sale. Middle market companies typically engage an investment banker to assist in mergers, acquisitions and sales. Recognizing the importance of “getting it right the first time,” most sellers seek out professionals whose expertise and experience in selling similar-sized companies pave the way for a successful sale.

Owners give various reasons for using investment bankers, but here are the most common:

Perspective
“Go get yourself the best expert to represent you, because you will do it one time and the buyers have probably done it many times.” – Mayer Mitchell, who sold a $20 million home building business*

A good investment-banking firm should have a keen perspective of the market for the company and be able to determine a reasonable range of values that will be acceptable to various groups of buyers. It is equally important that the investment banker should be able to access the merits and qualifications of prospective buyers. Sellers are interested in direction—what do we do first and where do we go from here? Entrepreneurial instinct is usually no match for experience in the sales process and negotiating the terms of a sale. ?

Positioning
“Having the buffer of a partial negotiator, the investment banker is very, very important because he can feel out the emotional climate. He can make a more realistic evaluation of the feelings of both buyer and seller. You want some unemotional involvement.” – Marvin Levine, who sold an $8 million institutional pharmacy*

A third party is generally much more effective than the seller in negotiating the sale. Certainly, the investment banker will not know as much about the company as the seller, but unlike the owner, he can solicit interest without causing the owner to appear overeager. The investment banker is also better suited to engaging in discussions with multiple buyers, which can create momentum and ensure a fair price.

Market Access in a Confidential Manner
“Judging from what happened to us, I would say the biggest problem is identifying the potential buyers. On my own I would not have come to the ultimate buyer in a thousand years.” – Harold Blumenkrantz, who sold a $25 million health care business*

An experienced investment banker will not only be aware of prospective buyers, but also have relationships with private equity groups and referral sources that can broaden the field of prospective buyers. Knowledge of the market is developed over years of experience. An investment banker can solicit initial interest without disclosing the identity of the seller.

Proactive Approach:
“I should have talked to more buyers. I think my problem was fear of having my customers and my competitors hear that we were for sale. In hindsight, I would probably have done better to have gotten the word out into the market, and I think I could have ended up with a couple of other major players bidding for the business, and that could have made a big difference in the ultimate price.”–Robert Girven, who sold a $8 million manufacturing company*

One of the classic mistakes that sellers make is simply responding to inquiries by suitors. There’s a better way to sell! The seller should be running the show and presenting the company in the light most favorable to the company. The actual process of selling the company helps to ensure that the buyer is the right buyer and not simply the first one to make a serious inquiry.

Expertise
“Price is obviously the number one issue—but the baggage you take with you after the price may be more important.” –Woody Comstock, who sold a $18 million manufacturer*

Beyond knowledge of the marketplace, investment bankers are experts in negotiating and structuring a sale. An understanding of tax and legal issues related to the sale is critically important in arriving at a price upon terms that will be acceptable.

*Adapted from How to Sell Your Business by Colin Gabriel.