Why Hire an Investment Banker?                                         [Download the PDF version]

January 2002
By Emile Reed

"I can sell the company myself. I've successfully run the business and I can sell it with the help of my legal and accounting team. Why hire an investment banker?" This is a question that many successful companies face at some point. Employing an experienced investment banker will increase the likelihood that you will arrive at a financially favorable transaction. While you attend to business.

The assistance of an experienced investment banker can:
Ø create a competitive bidding environment amongst multiple potential buyers,
Ø maximize the overall sales price,
Ø appreciably increase your chances of selling the business in a timely manner,
Ø reduce the time it takes to sell the business on your own,
Ø allow management to focus on the continued operation of the business and,
Ø create a transaction structure that best meets the needs of the company's owners.

On the other hand, choosing the wrong investment banker, or going it alone can cost the company time and money while negatively impacting the transaction process. If you were to ask an executive who has worked with an investment banker before why they utilized their services, you would be likely hear some of the following benefits.

Specialized Knowledge
Most successful businesses have a lawyer and a CPA that they trust implicitly. Frequently, these advisors do not possess a strong knowledge of the process of successfully portioning a company for sale, negotiating with seasoned acquirers and closing in a timely manner. Investment bankers earn compensation by effectively and competently advising senior staff on the details of transaction process. During the sale process, the investment banker serves as the project manager, tapping into the skills of the lawyer and CPA where appropriate and, in the process, forming a cohesive advisory team. If you are thinking of working exclusively with your internal/external lawyer or CPA during the sale process, be sure to ask yourself the following questions.

Do your advisors:
Ø have an up-to-date understanding of capital markets and the current financial structures used by those acquiring companies in your industry?
Ø have adequate market knowledge and experience in negotiating divestitures?
Ø have the experience to objectively examine and confirm the market value of your company based on a current understanding of capital markets and similar transactions?
Ø know which strategic buyers would likely be interested in acquiring your company?
Ø have prior experience negotiating sales transactions within your industry?
Ø have the ability and experience to bring multiple purchase offers to you?
Ø have the proven ability to effectively manage and lead you through the sale process in light of the substantial time commitment required?

If the answer isn't an emphatic "yes" to all these questions, then you should consider hiring an investment banker.

Time Management
An "average" sale or divestiture project takes greater than (>) 400 hours of the investment banker's time. Senior executives are frequently consumed with the day-to-day requirements of running the business, leaving little time to explore and aggressively pursue all alternatives. For those executives who try to manage the sale process while running a business, one or both efforts are likely to suffer or fail altogether.

Defining and Setting Objectives
Management regularly spends a considerable amount of valuable time/effort creating and refining their marketing plans. Planning for the sale of a company rarely receives the same level of concentrated effort. Defining and planning for the requirements of the sale process is a time consuming and continuously evolving process. An experienced investment banker understands what questions to ask to help you establish your transaction objectives as efficiently as possible. Accurately defining and setting your transaction objectives is the starting point of planning for a successful sale.

Current Understanding of the Capital Markets
A skilled investment banker invests a substantial amount of time and energy to maintain knowledge of the capital markets. Effectively marketing your company to potential buyers requires a strong understanding of current industry trends and market requirements. At the end of the day, your investment banker will be able to determine precisely which buyer(s) will likely offer you the most for your company, based on current market conditions.

Establishing and Maintaining Contact with Potential Buyers
In today's market, senior management is frequently bombarded with acquisition opportunities. In order to get the attention of a potential buyer, you are often required to have a relationship with, or introduction to, the buyer. Using a well-respected investment banker to assist in the sale process saves you time and increases your chances of receiving the most qualified purchase offers. An experienced investment banking firm has a deep network of relationships that they put to work for you.

Objective Valuations
One of the key factors influencing every acquisition decision is valuation. If the valuation isn't reasonable compared to other opportunities under review, the potential buyer will quickly decline. An investment banker will leverage their experience and up-to-date knowledge of capital markets to help you establish realistic valuation expectations.

Attracting Multiple Offers
Every business owner knows that in order to get the best deal, there must be competition. Whether you're selling something to the highest bidder, or working with multiple suppliers to secure the lowest bid, competition results in the best deal for you and your company. Selling a business is no different. The more competing offers you have, the greater your leverage during negotiations. One of the most important things that investment bankers do is to attract multiple offers for your business.

Preparation for Due Diligence and Negotiations
Meetings with potential buyers are your opportunity to sell the potential of your company. Being well-prepared for these meetings requires an understanding of buyer expectations. and an experienced investment banker will coach you in appropriate expectations for these meetings so you're well prepared to represent your company in a manner that meets buyer expectations.

Optimizing Transaction Structure
Just as every company is unique, every transaction is unique; each deal must be structured to meet the specific objectives set by executives and shareholders. Transaction structures change due to the many factors impacting a deal including: deal pricing, terms and conditions, valuation, earn outs, fluctuations in market conditions, liability concerns, and employment contracts to name a few. Reaching agreement on the originally proposed transaction structure in an initial term sheet rarely happens. An experienced investment banker will help establish parameters designed to optimize the transaction structure from your perspective.

A Proven Track Record of Negotiating Successfully
One the most important skills an investment banker brings to the table is the ability to successfully negotiate transactions. For company owners, the experience in negotiating terms sheets and transaction structures may be an infrequent event. Investment bankers are skilled negotiators with the proven ability to balance your interests against those of the buyer. By employing an experienced investment banker you level the playing field, resulting in a better deal for the company and shareholders.

In summary, the qualified investment banker reduces stress, risk and the time it takes to successfully close financing. Employing an experienced investment banker will increase the likelihood that you will arrive at a financially favorable transaction. While you attend to business.