How to Engage an Investment Bank to Sell Your Business
When you have the decision to sell your business you often feel like you have jumped the highest hurdle. In some ways, you have, but there is still a lot of race to be run.
Once you have made the decision to sell your business, you then have to assemble your team of experts. These can include some of your management team, if appropriate, your existing accountant, and an attorney that is familiar with transactions. You will also need to add an experienced investment banker. While you have probably had a few conversations with your accountant and attorney over the years, chances are, you don’t have an investment banker with whom you regularly communicate. Here are some things you will want to consider when finding one for your team:
1. Ask your team of professionals for recommendations
Chances are that your accountant or attorney has worked on sell-side transactions in the past. Through that interaction, they have been able to see which banks, and specifically which bankers, know what they’re doing. If they are unable to come up with some names, have them ask their colleagues. Chances are they will have stories of which bankers carried themselves well, ran good processes, and obtained the best values for their clients. These are the people with whom you need to focus on speaking with.
2. Don’t Get Enamored with the Name of the Firm
Firms work very hard to develop their brands (TKO Miller included) and the fact that you want to work with a certain firm is a testament that this branding works. Good firms generally attract good people, so you can sometimes rely on a firm name to pick an investment bank. However, what is more important is who, exactly, will be working on your transaction. And by working, I mean the day-to-day activities involved in selling the business. Oftentimes, investment banks will trot out the very experienced, grey-haired bankers to pitch you on the engagement, but the everyday work can fall to very young, inexperienced employees. Some things to ask:
- Who will be working on my transaction? (get the names and bios of the whole team)
- What else will they be working on at the same time?
- How many years of experience do my team members have?
3. Experience Matters
You already know this. For investment bankers, years of service is certainly something you want to check. Probably more important, though, is the experience they have on your type of transaction. Industry experience is especially valuable and there are bankers who have very specific industry experience. This can help with any industry accounting anomalies, writing the offering memorandum to include industry-specific terms, and identifying the correct buyers.
In some cases, situational experience is even more valuable. For instance, if your sale involves family dynamics, someone that knows how to navigate those situations might be better than someone that has experience in manufacturing. Partial sales, private equity-focused sales, and sales to large, public companies are all examples where a firm might have expertise that is very valuable but isn’t necessarily industry-specific.
4. Interview More than One If You Can
Once things get underway, you are going to be spending a lot of time with this group of people. It is important that you feel comfortable and can communicate effectively with the team. Different groups will give off different vibes and one may be more attractive to you than another.
5. The Highest Valuation Isn’t the Best Reason
It is rarely a good idea to hire a group based solely on the fact that they gave you the highest valuation. If there is supporting evidence for that valuation or the group has some industry knowledge that makes the valuation more credible, it might be OK, but in some cases, investment banks use high valuations to lure clients. Once a client is engaged they run the sale process and deliver numbers that are substantially below their price that they indicated during the pitch. Then, they hope that the seller is so far into the process that they decide to sell anyway. Generally, investment banks are careful about their reputations and avoid this behavior, but it happens.
6. A Good Investment Bank Might Say “No”
There are plenty of times when TKO Miller receives a call to pitch for a sell-side assignment and we have to decline. Reasons to decline might vary, but the most likely one is that your transaction doesn’t fit our expertise. Investment banks generally have deal size ranges in which they work. If your transaction is too big or too small, it won’t be a good fit for that bank. Other reasons might include not having experience in your industry or having too many transactions in-house. If an investment bank says “no” to your transaction, please don’t take it personally. They are doing you a favor. You want the right team with the right experience working with you.