Clear answers for M&A questions.
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Why should I hire an investment banker (versus going it alone or hiring a business broker)?
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Think about the largest sale you worked on in your career. How much planning did you undertake for that sales pitch? How much thought did you give to the execution of the relationship? Now compare the value of that sale to the ultimate value of your business – perhaps the largest financial transaction of your life. How much preparation have you put in for your ultimate sale transaction? Do you have the team in place to make it happen, both internally and externally? Having an investment banker involved will make your life easier and add value to the transaction.
As an entrepreneur, you have been conducting negotiations with suppliers, customers, and distributors for years or, in some cases, decades. Yet, selling your company is likely the most important and complex deal you will ever close. Consequently, the value that can be left on the table and the time and money that can be wasted without the support of an experienced M&A team can be substantial.
Depending on your deal size, a business broker may be an appropriate option if your deal size is expected to be less than $10 million. For companies with an expected value above $10 million, we recommend engaging with an investment banker to maximize your value. The fees associated with a deal team of investment bankers, attorneys, and accountants can seem exorbitant at first glance. However, we have yet to hear a client express that the value of their deal team didn’t pay for itself by the end of the process (often times many times over). Just as your surgeon, pilot, or plumber could tell you, some things in life are worth going with the pros!
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What things should I be doing today to help get my business ready to sell or raise capital?
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There are countless ways you can start to prepare your business for an eventual sale or capital raise (our CoPilot Assessment alone has 90 risks potential risks identified, each with multiple fix and mitigation options). In addition, our Exit Academy and Pathfinder programs will introduce you to dozens of applications, tools, and technologies to get your company in shape to undertake a sell-side process and prepare yourself personally for life beyond the sale.
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Where can I learn more about the M&A process?
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If you would like to learn more about the M&A process, in addition to other relevant business topics, we would encourage you to visit our resources page, where we have developed a collection of content for entrepreneurs looking to grow or sell their business. In addition, we would advise you to read Chris Younger and David Tolson’s book, Harvest: The Definitive Guide to Selling Your Company. If you are interested in receiving a copy, please reach out to chris@classvipartners.com.
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What should I do if a buyer approaches me, wanting to buy my business?
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We receive at least 4-5 calls a month from business owners who want to know if the acquisition price their competitor or major partner just offered for their company is “fair.” Our answer is usually an unsatisfactory, “We don’t know.” While these transactions can and do meet a seller’s needs, many of these “one-off deals” never close without proper guidance or assistance. They end up wasting a lot of time, money and energy for business owners.
A one-off process can be great for a business owner, but without a competitive process to produce several offers, they will not know for sure if they were able to maximize the value of their company.
We have worked in one-off deal scenarios before and while it doesn’t give you the benefit of time to prepare or market context, having an investment bank involved can literally be worth millions. If you are approached with a one-off offer, we recommend the first thing you should do is call a reputable investment banker and start the conversation around the buyer and their interest, and examine what works best for you from there.
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What is the difference between a one-off deal and a banker-led process to sell my company?
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A one-off deal follows this typical pattern: someone calls you, expressing interest in buying your company. Either because of your prior relationship or the effectiveness of their sales pitch, you are intrigued and decide to start providing them information. Absent careful planning and a well-considered strategy, their initial interest and lofty valuation promises can start to erode, and after a few months you wonder if you have made the right decision. As a result, we estimate that a majority of these one-off deals fail when they are attempted without expert guidance.
Conversely, a banker-led process means your business will be prepared in advance to endure the rigors of due diligence, and you will have talked with, and ideally received bids from, several interested buyers. Having this level and diversity of interest means you have several options in case your initial option as a buyer falls through. It also means those buyers are going to be putting their best foot forward, just as you would with a potential customer if you knew the process to get that customer was competitive. By having these options, your odds of getting a deal done increase significantly, and your valuation will almost certainly be higher than if you were to simply go down the path with one bidder.
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What should I look for in an investment banker? What questions should I ask?
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Selecting the right investment banker is a lot like picking the right doctor, lawyer or accountant — it is best based on trust that they will have your back, confidence in their capabilities and experience, and comfort level that they will be good to work with. As you are interviewing potential candidates, ask them about their process — do they have a well-defined process that you feel comfortable with? Is it designed to attract the very best potential bidders for your business? It is designed to preserve confidentiality? What is their negotiating style and does it match with your own personal style and/or preferences? Do they ask intelligent questions about your business which would demonstrate their grasp of business in general?
Ask to talk with the banker’s references (both prior clients as well as other advisors with whom they have worked), and ask the banker about prior success stories and prior failed deals.
Finally, ask them about their fee structure — is it aligned with your success? Almost every investment bank charges some type of retainer, as it is costly to bring a company to market, and the best firms simply won’t take an engagement without a financial commitment from the client. As with any product or service, remember that you usually get what you pay for.