January 14, 2021
Every so often a new client comes to us after a failed attempt to sell their company without professional advisors. They may be distraught, discouraged or burnt out with the entire effort, having wasted 1 – 3 years in the process, and many times with only one perceived buyer. Each has their own story to tell, but there are common elements in all of them. They found that buyers sometimes lacked any time urgency to move forward, started chipping away at the price, may still be trying to raise the cash funding needed to close, hoped that the business deteriorated some to buy it cheaper, started having buyer doubts since no one else seemed to be chasing it, or maybe just couldn’t seem to “pull the trigger”.
We closed a deal last year where we received such a willing seller who had previously been down this path. The client was in the medical field which was is being hotly pursued by large private equity groups and strategic buyers paying double digit multiples of cash flow for the practices. Long story made very short – after we were engaged and ran the “process”, the buyer winning the competitive negotiation ended up being the same buyer that wasted 2 years with the owner, and paid a price 60% higher than the one the private equity group originally offered when they approached the seller alone. To this day, the doctor owner states he “cannot believe we were able to get that kind of price increase and get it closed within six months!”
Not all deals increase that much just by hiring an advisor, but almost all get a significantly higher price which covers the advisor fee many times over. Below are ten reasons to hire an investment advisor to represent you in selling your company:
- Finding Buyers
There is an old saying in our business that “one buyer is no buyer”. Investment bankers supplement the owners’ knowledge of their markets and potential partners by tapping into their professional contacts and networks, investor databases, and expertise to identify and connect with interested buyers. Identifying the best buyers will produce the best deal for the seller.
- Qualifying the Buyer
Whether you go at it alone or hire a broker, getting to the finish line and finding out that the buyer is still trying to borrow the closing price or raise the funds from friends and family results in a very unhappy ending and failed closing. Investment bankers will “qualify” the buyers early in the process to ensure that they are capable of actually paying the purchase price.
- Managing the sales process
Investment bankers are often quarterbacks for the entire transaction process. They are the ones who are responsible for keeping the transaction process competitive, coordinating between all of the different aspects of the transaction, managing a broad team of other advisors, and keeping the transaction moving to a closing.
- Adding credibility to the seller
Engaging a quality investment bank sends a strong message to all the parties involved that there is a genuine commitment by the seller to explore the transaction and that there is professional representation, thus increasing the likelihood of a successful closing.
- Preparing the company for sale
Sellers are rarely prepared for the intense scrutiny from experienced buyers and their litany of professional transaction advisors. Investment banks can help business owners with this preparation which can involve everything from preparing detailed financial models and projections to in-depth customer analyses to working with management to prepare them for an intense transaction process.
- Educating and coaching the owner
The vast majority of business owners have never closed a transaction. Strong investment bankers who have managed hundreds of transactions can bring the benefits of that experience to the owner. Hiring a main street business broker for a complex transaction is like letting a general practitioner perform heart surgery on a patient.
- Negotiating the deal
Investment bankers typically take the lead in negotiating the terms — not only purchase price but also the terms and conditions, timing, process and other major considerations of the transaction. Creating a real or perceived competitive auction process is critical to get the highest price and terms for the seller.
- 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.
- Enabling owners to run the business
The transaction process is an intensive process for sellers to endure, especially as they are trying to run the day- to-day operations of their company. By taking on most of the day-to-day work of selling the company, investment banks enable business owners to focus on growing their business rather than managing the transaction process, which typically lasts for between six and nine months.
- Keeping all parties on track as to the planned closing date
Another adage we use in our business is “Time kills deals”. It is important to keep the deal and closing timeline on track throughout the process. This is very difficult to do without a banker or intermediary to be the “bad cop” with the buyer, attorneys, accountants and other parties involved in the deal.
Written by Steve Zacharias, Managing Partner for Transact Capital Partners
Image Credit: edX