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Should I Hire an Investment Bank to Sell My Business?

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When selling your business, choosing the right investment bank is one of the most critical decisions you can make.

Some business owners may question whether to hire an investment bank to help with the transaction – perhaps to save on transaction fees or because a buyer has already approached them with an attractive offer. Before you decide to “go it alone,” consider some of the advantages of hiring an investment bank.

 

10 Benefits of Hiring An Investment Bank

1

Create a Competitive Market

Investment bankers run the sale process, negotiate on your behalf, and create competitive tension among buyers in order to secure the most bids and best possible sale outcome for your business.

2

Provide Access to Unique Buyers

Even experienced business owners who know their industry extremely well may be unaware of or lack access to certain buyers, including private equity firms and family offices, that may be interested in their business.

3

Increase the Odds of Getting a Deal Done the First Time

Nearly 25% of companies formally taken to market fail to sell.1 Hiring an investment bank can help you avoid common “deal killers” and keep parties at the table when a deal is at risk.

4

Leverage Knowledge of Buyers’ Past Behavior

Investment bankers do this for a living and therefore understand how buyers think and negotiate.

5

Build Credibility With Your Investors

Reassure minority shareholders and other stakeholders who may question your decision to sell that you ran a thorough, professional process.

6

Take the Burden Off You and Your Team

It is critical, especially during a sale process, that your business continues to perform at or above your financial projections. Let the investment bank do the heavy lifting and run the transaction process so that your management team can continue to focus on running the business.

7

Uncover Creative Deal Solutions

Create unique deal structures and terms, such as earn outs, seller notes, and preferred equity, to bridge the gap between buyer and seller and get a deal done.

8

Demonstrate Your Commitment to Transact

Hiring an investment bank signals to potential buyers that you are serious about selling your business and you are bringing sophisticated advisors to the negotiating table. Many buyers prefer to have an investment bank serving as an intermediary to drive a predictable, efficient process.

9

Provide Access to Expensive Resources

Investment banks often have access to costly databases and software platforms that will help you better understand the market for your business and “dress up” your business for sales presentations.

10

It’s What the Professionals Do

In our experience, professional investors like private equity firms nearly always hire investment bankers to sell their portfolio companies – and they buy and sell companies for a living.

 

Quantifying the Value of an Investment Bank

Based on select historical data, transaction values were 1.5x EBITDA higher on average when business owners used an investment bank to sell their business.

 

Deal Multiples With and Without Sell-side Financial Advisor

Engaging a financial advisor tends to result in an additional 1.5x EBITDA turns on average while also narrowing the dispersion in valuations, which implies lower risk.

 

Consider the following when choosing the right investment bank for your business:

  • Firm and team experience (number, type and average size of deals completed)
  • Depth and size of the team representing you
  • Transaction experience within your specific industry
  • Working chemistry between your team and their team
  • Access to international buyers, if relevant
  • Existing or potential conflicts of interest
  • Overall reputation
  • Structure

 

Hiring an investment bank is a significant decision in its own right. For help evaluating strategic alternatives, interviewing and hiring transaction advisors including investment banks, and coordinating the sale process, consider contacting one of our advisors. 

Business Owner

Choosing an Investment Bank

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  1. Pepperdine 2021 Private Capital Markets Report.

Disclosures

This information is not intended to be and should not be treated as legal, investment, accounting or tax advice and is for informational purposes only. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal, accounting or tax advice from their own counsel.  All information discussed herein is current only as of the date appearing in this material and is subject to change at any time without notice.

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