A buyer has reached out to you about acquiring your company. You are initially thrilled, but then you begin to be concerned. Will they give me a fair valuation? How do I keep things confidential? There are undoubtedly hundreds of questions swirling around in your head.
Many times, a business owner's next step is to call their attorney. What happens after the call is critical.
If at some point during that call you don't hear the words "we should consult with a good investment banking firm," you should bring the option up yourself. Good deal attorneys know that an early consultation with an investment banker can yield a wealth of knowledge even at the offer stage.
Your investment banker can answer the questions that arise early in a negotiation like:
- Is this a good price for the business?
- Does this buyer typically do what they say they will do?
- Are these terms and conditions market?
- Will this structure work for me?
If you or your attorney don't have a "go-to" investment banker, then together you should interview a couple of investment banking groups, paying careful attention to each group's background and expertise relative to your company's situation.
You should be nervous if your attorney begins to suggest that they can work on the transaction without the assistance of an investment banker. Moving toward finalizing a transaction without a banker is shortsighted and dangerous. Although investment bankers charge a fee for their services, they generally pay for themselves in increased purchase price and certainty to close.
Without a banker you are most likely going to leave money on the table by taking an offer without running a process. With only one party involved, all the leverage remains with the buyer, no matter how skilled a negotiator the attorney may be.
Also, remember that the offer you receive from an unsolicited group is often not a legitimate offer. Competitors sometimes use this tactic to gain market knowledge. Similarly, private equity groups and corporate development teams hire people whose only job is to put "offers" in front of as many companies as possible, learn more, and then decide that the business doesn't fit their criteria. The right investment banker will be familiar with buyers in your industry, and willing to evaluate the offer, the buyer, and the buyer's past behavior before you move forward with a transaction.
Corporate attorneys certainly have their client's interest at heart and might be trying to save a fee by working on a transaction without an investment banker. For middle market transactions, this is shortsighted. An investment banker will bring industry knowledge, buyer knowledge, and competition to the table, and will more than earn their fees.