So you’ve decided to sell your business. After months of discussion and debate, you’ve made this difficult decision, so that’s the hard part over. It should be plain sailing from here on in – right? Unfortunately, it’s not. Selling your business is likely to take up as much time as running your business, so how do you manage both at the same time? Hopefully you have an mba degree to provide a solid source of background knowledge, but it will also take a little more than that.
Many prospective business sellers decide to engage the services of an investment banker, and this can be a smart move. It’s important to choose wisely though, so here are some tips to get the right fit between company and investment banker.
What is the role of the investment banker?
An investment banker’s core purpose is to calculate the company valuation, and then support the key elements of the sales process. Their role extends to handling many of the time consuming aspects of the sale, from producing marketing materials, developing financial models and co-coordinating the due diligence process.
If you go for an in-house led sales process, these sorts of activities can distract from the day-to-day operations of the business. As the purchase price is often contingent on post-closing performance, the last thing you want is your senior team taking their eye off the ball and company productivity nose-diving in the run up to the sale completion.
It’s not a cheap option – fees can range from 1-5% of the overall sales transaction. That might sound a lot, but as their expertise is likely to significantly raise the sale price, engaging an investment banker can be an extremely profitable move.
Getting the right fit
Like any business appointment, this is someone you are bringing into your team – albeit on a temporary basis. You need their approach to dovetail with that of your organization, in order to maximize combined outputs. Investigate their reputation by talking to commercial contacts and using business focused social media.
Think about the scale of your business and find an investment banker who deals with commensurate companies. Opting for a giant sized investment bank if you are a small to medium sized organization, can result in less attention paid to your deal than you would want.
Source specialist knowledge
Getting the best price for your company will require in-depth knowledge of the organization and the industry in which it operates. You will play a major part in the sales process, in terms of setting the scene to potential buyers around how your industry is evolving and how your company fits in.
But your investment banker needs to be on the same page in terms of commercial expertise. Only appoint someone who has specific experience in your industry. At a fundamental level, they need this to provide a realistic valuation, but it is also important for other tasks such as developing marketing materials.
This is very much about collaborative working. You will need to oversee and feed into key documents such as the selling memorandum – after all you’re the real expert on your company – but the investment banker should already have comprehensive industry knowledge so you’re not starting from a blank page!
Start as you if you intend to go on with your investment banker, and ensure they know who is boss in the process. This might sound brutal but you don’t want to let a ‘tail wagging the dog’ situation develop.
The investment bank is being rewarded handsomely for their efforts, so ensure you are seeing regular evidence of their activities. Ask for a weekly report on the work they have undertaken in pursuit of the sale. This will help focus their mind on your company’s requirements.
Take a confident approach to the engagement letter, and incorporate ‘outs’ that will allow you to terminate the contract with minimal penalties. The investment banker is likely to resist this, but if they are assured in their ability to complete the deal, this shouldn’t be a blockage to their engagement.
You want to sell your company at the best price, and there is no doubt that the right investment banker can help you achieve this. But taking the time to research the banker you appoint and setting down a few ground rules can ensure the maximum reward for the investment you make.